TOURISM TAX DEBATE HEATS UP

The hospitality industry is coming out with all guns blazing following City of Edinburgh Council’s blatant disregard of its concerns over the introduction of a tourist tax or Transient Visitor Levy (TVL) which would apply to all visitors using commercial accommodation, including those on business travel. 

While the Council is pursuing its objective, it doesn’t yet have a green light from the Scottish Government, and it will need this if a TVL is to be implemented. Local authorities cannot start setting and collecting a Tourist Tax themselves – they require Scottish Parliament primary legislation. The Act would determine the tax base – in this case, the tax base would most probably be the number of nights spent in hotels or other forms of accommodation. As a local tax, this legislation would also allow local authorities to set the rates.

Just to recap: Edinburgh Council Leader Councillor Adam McVey mooted plans for a Tourist Visitor Levy (TVL) earlier this year, and suggested on Twitter that it would be implemented within 12 months.

Culture Secretary Fiona Hyslop immediately dismissed McVey’s claims, and subsequently so did Derek MacKay, Cabinet Secretary for Finance Economy and Fair work saying “the Scottish Government has no plans to introduce a levy on the tourism sector.”

However, COSLA has also backed the plan and has confirmed that all 32 local authorities have unanimously agreed that COSLA should pursue a TVL which infers that every council in Scotland would consider introducing the levy. Although this may seem at first glance an issue for Edinburgh, it is actually an issue for hospitality businesses throughout Scotland as Councils, in fact, Aberdeen, Glasgow, Highland, Moray and Argyll and Bute have intimated that they too are looking at it.

Marketing Edinburgh released a survey, backed by City of Edinburgh Council which suggested tourists would not be deterred from visiting Edinburgh if a tourist tax was introduced. Just over 500 visitors contributed to the survey over the months of July and August, but one marketing research expert told Hotel Scotland, “That is not a significant number when you consider the number of tourists that were in Edinburgh over that period.”

Just over 500 residents were also surveyed and 59% backed the tourist tax. Cllr Adam McVey believes, the results back up the council’s case. He said, “The results reinforce our thinking – and add weight to the evidence from other international cities – that visitors will not be discouraged from visiting Edinburgh should we introduce a TVL. This evidence dispels many of the fears voiced by some in the industry and is a valuable contribution to the debate.”

Less than four weeks later City of Edinburgh Council formally released its consultation on a transient visitor levy (TVL) under which it revealed that instead of the £1 originally mooted it now proposed to charge a tourist tax of either two per cent of a room charge or £2 per room per night. The council claimed it had consulted tourism bodies, a claim called into question by Willie Macleod, Executive Director, UK Hospitality, who said, “We are outraged by the sheer lack of meaningful consultation that has taken place to date.” His response was echoed by the Scottish Tourism Alliance (STA), Chief Executive Marc Crothall (pictured) stated, “The Scottish Tourism Alliance (STA) is disappointed that Edinburgh City Council has proceeded to launch a consultation on its plans to charge a tourist tax of £2 per room, per night, having had no formal or meaningful engagement with Scotland’s tourism industry to date.”

He went on to say, “The STA has requested that a formal stakeholder consultation takes place at national level, initiated by the Scottish Government.”

In all response to a Hotel Scotland’ inquiry as to why Edinburgh Council had not consulted the STA and UK Hospitality, the Council said in a statement, “In respect of the STA, we have sought to engage with STA members in a number of ways. STA has been represented or been in attendance at:

• One of our initial roundtables

• The ETAG briefing that took place in September

• The COSLA national meeting

“The council has not been invited to meet or engage with STA but the Chief Executive proactively wrote to them offering to participate in any way helpful in their National Conference and beyond. This offer was declined.”

However, Marc Crothall denies this, “The STA has not been invited by City of Edinburgh Council to any meeting to discuss the TVL. We had representatives at a COSLA meeting and at the ETAG breifing but these were not council meetings and we were not there to discuss the TVL. As to the round table we have not been invited to any round tables organised by the council.”

He continues, “As to our annual conference – they contacted us a week before and asked to participate. At that stage, we already had a full agenda with the First Minister Nicola Sturgeon speaking. So we couldn’t accommodate an extra speaker at such short notice. But I have suggested a further meeting and have heard nothing back.”

At that STA annual conference, on 1st October, guest speaker First Minister Nicola Sturgeon took the initiative saying, “We will be accepting the STA’s call for an objective process of consultation, involving the STA, Cosla and other key partners, which will examine in detail the arguments for and against a tourism tax.” She continued, “We are determined that all voices will be heard and that the details of the process will be properly set out shortly.”

On hearing the news Cllr Adam McVey said, “This is a very welcome announcement and will help provide a national context for Edinburgh’s policy and will work alongside the detailed engagement we have carried out in recent months as well as our forthcoming citywide consultation. We have always acknowledged the need for legislation in taking this forward but we as a Council have also maintained the need to develop our own plans to make sure it’s not just any TVL but the right TVL for Edinburgh, taking account of our local circumstances.”

And it didn’t end there… the following day the Council approved its own formal consultation! The STA immediately hit back in a statement, “The Scottish Tourism Alliance Member Council is disappointed that Edinburgh City Council councillors have approved the launch of a formal public consultation on how a transient visitor levy, or ‘tourist tax’ would look if it were introduced in the Capital, given the announcement by the First Minister yesterday in response to the STA’s request to the Scottish Government to launch a formal, national stakeholder consultation into the viability of a tourism tax.”

It’s not just the STA that is up in arms, UK Hospitality is also seething. Willie Macleod, Executive Director, UK Hospitality, said, “There has been no thorough examination of options or any assessment of the impact on businesses or consumers. Hotels and tourist businesses are already major contributors to public funding and there remains a distinct lack of clarity from all local authorities proposing a tax, as to what the money would be spent on and what actual benefits would be delivered. The tax is vehemently opposed by a wide spectrum of tourism businesses, not just within the accommodation sector. Their views and opinions have not been heard.”

The two bodies between them represent most tourism organisation in Scotland from VisitArran to Outer Hebrides Tourism and the Federation of Small Business.

Macleod continued to put forward the argument against when he gave evidence at the

Culture Tourism and External Affairs committee on 4th October and spelt out to politicians the fact that this tourist tax could cost Scotland £175m, with Edinburgh picking up £45million of that cost, a far outweighing the £11m worth of revenue that the Council say could be raised.

He cited research done by the Tourism and Travel Research Institute (TRRI) at Nottingham University found that a 1% increase in UK prices or relative exchange rates would lead to a 0.61% fall in tourism expenditure in the UK by inbound tourists. He also cited other research that illustrates a tourism price elasticity of -1.3% if prices rise by 1%.” He also revealed that contents of a report by PwC. Said Macleod, “In its October 2017 report (The Impact of Taxes on the Competitiveness of European Tourism) for the EC Unit for Tourism, Emerging and Creative Industries, PwC, among other conclusions, reached the view that ‘If any part of the UK introduces an occupancy or bed tax (in addition to high VAT on accommodation and air departure tax) it will represent the most comprehensive (and we would argue most damaging) tax regime on the tourism sector in Europe’.

While he acknowledged that residents of Edinburgh may initially support the initiative, he points out that the TVL will apply to all visitors (unless exemptions are put in place) and will increase costs for travellers including the domestic tourists who comprise c60% of Scotland’s visitor market. He said, “This means additional costs for residents of Scotland who holiday in the country and who are already hard-pressed because of ongoing price increases brought about by the relative weakness of Sterling, potential interest rate rises and uncertainties surrounding Brexit.

He also pointed out, “Analysis for UKH indicates that, in Scotland, the visitor accommodation sector alone makes a significant financial contribution both to the Exchequer and to public revenues in Scotland – this totals £719m.”

He gave the committee context when it came to other European countries who did have a TVL. He said, “The UK is a high-price destination for international visitors, for those who choose to holiday at home and for business travellers. The high rate of VAT compared to our EU competitors is a major contributory factor to this. The UK is one of only 3 EU countries (the other two being Denmark and Slovakia) not to apply a reduced rate of VAT to tourism and hospitality services – for example, the rate of VAT on a hotel room in the Republic of Ireland is currently 9%, in France and Spain it is 10%, in Germany 7% and it is as low as 6% in Portugal and Belgium.

In its Travel & Tourism Competitiveness Survey for 2017 (conducted annually) the World Economic Forum ranked the UK 5th of 136 countries in terms of tourism capability and readiness but in terms of price competitiveness, the UK is listed 135th of 136.”

The council told Hotel Scotland, “To date, the Chief Executive, the Depute Leader, other senior officers within the council and I have had 1:1 meetings with over 25 over our key strategic local stakeholders from industry, culture and tourism.”

If that is the case why has City of Edinburgh council not had a 1:1 meeting with Scotland’s key tourism bodies the STA and UK Hospitality?

New Blog: What is a Tourist Tax, and why is everyone talking about it?