Tourism Tax Update

Tourism or bed tax as it is often referred to has again become a hot topic as local authorities look for ways counter the increasing shortfall in their revenue and specifically falling levels of grant from Central Government.   The latest, largest and  potentially the most serious contender in England, London, has elevated the debate further with the Mayor endorsing the London Finance Commission’s report (study?) in to Devolved Government for London which, among other new funding ideas, includes a tax on “tourists” visiting the capital (27 Jan 2017).

Meanwhile having failed to get support from the Scottish Government in 2011 for long held ambitions to introduce a “tourism tax” Edinburgh, and now the adjacent  authorities of: East Lothian, Midlothian, Scottish Borders (combined effectively the South East corner of Scotland) and Fife (also adjacent to Edinburgh but to the North on the other side of the Firth of Forth) are seemingly set to get tourism tax raising powers and potentially as early as this year (2017) if the UK and Scottish Governments approve their City Deal proposals.

The City Deal connection to both the London and Edinburgh proposals are crucial and it should be noted that other Devolution Deals done and being done elsewhere have not, as far as I am aware, included a tourism tax element. Therefore London and Edinburgh might not be forging the way ahead for others to quickly follow or at least not to the degree that we might all naturally be lead to assume?

Not unexpectedly BHA, the representative body for hotels has spoken out strongly against a proposal that would almost certainly focus on larger serviced accommodation providers as collection agents for a charge that would add to the overall cost of a hotel room.  These are of course the same hotels that are, on the whole, most engaged in voluntary tourism partnership and currently among those under pressure from a combination online travel agents (OTAs) who are taking a higher proportion of room rates and from home sharing (sharing economy) which is allegedly eroding their market share.

In response to the latest flurry of interest in “bed tax” the Tourism Alliance has issued a briefing note which is well worth reading in full:  tourism-alliance-briefing-on-bed-tax-2017 and keeping to hand as an aide memoire of the core arguments.  As you will gather from reading it the Tourism Alliance, as an entity, is opposed in principle to any additional tax on tourism.

From a destination point of view there might seem some merit in the tax proposals?  However, it worth noting that with the exception of the London Finance Commissions proposal and the Edinburgh City Deal, the majority of schemes proposed  at best see monies raised being used to offset the current costs of public realm and associated service provisions and/or at best arresting some of the falling public funding support for destination management. In the current harsh financial environment it is far more likely that any additional revenues raised will simply go in to the general local authority pot to be used as necessary to cover growing gaps in statutory provision.  The prospects of ring fencing specific tourism revenues expressly for the purposes of supporting direct and ancillary tourism activities are, in my view, increasingly poor.

Additional considerations for destination mangers include: practicalities around which accommodation providers could reasonably be included and who in reality is it that would as a consequence be paying the tax.  Instinct suggests larger serviced accommodation providers, often the ones who voluntarily participate in destination activities.  Whilst the payments clearly comes from their guest but it will be all guest, both UK and international, and across all purposes business through to leisure staying in those properties that are forced to participate.  The impact, often dismissed by supporter of the tax as irrelevant to an overseas holiday visitor, may be an issue to others; in practice a “staying visitor”, as opposed to a “tourism tax” and a tax paid, or not paid, dependent entirely on the type of accommodation chosen.   Additionally if the legislation to allow this where ever to be passed nationally or written into individual or all Devolution Deals not all destination will be able or willing to participate.  This will be a further distortion of costs for some and not other destinations, both neighbouring and by typology across the UK.

Finally it may help to understand that much of the resent hype around bed tax is essential about the lobbying of the UK and Home Nation Governments for and against the principle of a tourism tax but also on other closely associated issues, which are an equal or possibly the primary target.  Individual Councils and the LGA are quite reasonably making the point that local government finances in general are in dire straits and a revenue sources must be improved by whatever means available.  BHA and others are using this opportunity to continue to raise their views on the higher UK rates of VAT on tourism, whilst the Tourism Alliance continues to try to take a balance view based on what is best for UK tourism in general; increasing the overall cost of any part of the UK holiday experience isn’t, in their view, one of them.