Aidan Reid looks at the debate about introducing a tourist tax in Scotland.
As the nights draw in and the days get colder, we move towards a seasonal highlight for which we all gather round and ponder what presents will be received. Yes, the Scottish Budget process is fast approaching us. There are a number of issues which Derek Mackay will have to face or smoothly dance around in his statement. One issue he may be uncomfortable dealing with is the Transient Visitor Levy.
More commonly called the Tourist Tax, it is a £2/2% levy on all hotel rooms/holiday rental rates. This kind of charge has been adopted in several European cities, with studies indicating varying levels of success. The Government has committed to launching a consultation on whether it should be pursued nationwide, with the City of Edinburgh already in the process of asking residents and businesses whether it should introduce the measure.
Sometimes Tax is Taxing
There is significant opposition. Sessions held by the Culture, Tourism, Europe & External Affairs Committee have seen a significant divide between local authorities who want to enact it, and tourism businesses and organisations who are opposed. The Government consultation was also promised despite previous reluctance by Cabinet Secretary for Culture, Tourism & External Affairs, Fiona Hyslop, to pursue such a levy. Whatever the evidence the divisions over this policy also cut across a number of wider political debates which complicate the issue further.
The first of these is how tourists should be treated in Scotland. Organisations such as UK Hospitality argue such a levy comes at the worst possible time for tourism, with Brexit creating uncertainty as to the viability of the sector. Even a small adjustment to the cost of visiting Scotland might endanger livelihoods. In contrast, Adam McVey for the City of Edinburgh Council argued that while visitors are welcome, they do cause a strain on facilities. This was more so the case for Highland Council, which claimed developments such as the North Coast 500 have seen once isolated areas become strained by a sudden rise in visitors.
Where Does The Money Go?
If the principle of such a tax is in dispute, who will operate it also vexes stakeholders. COSLA has argued in favour of local authorities setting individual rates. This is felt to be the best way to acknowledge some areas would not want to use the powers at all, while others would want to eventually set a higher rate. Areas like Edinburgh would also want to make direct use the potential £12m it could raise, rather than see only part of that return to the area in the form of a nationally-distributed fund. Evidence to the Committee from bodies such as the Scottish Tourism Alliance, suggested different tax regimes in different localities was feared by businesses, who called for a national rate.
Finally, where and how the funding from such a tax would be used also leads to strong division. Industry bodies have stressed throughout that any tax would have to be directly reinvested into supporting the tourism sector. While local authorities like Aberdeen City Council seem happy to comply with this, Highland Council has suggested infrastructure support would be the priority for such funds. This would have benefits for tourists, but the focus would also be on communities adversely affected by additional visitors to their area.
Who Is Going To Budge?
Underpinning all this are the political calculations involved in adopting or not adopting this tax. It is almost certain that Green votes will be required for the Budget to pass through Parliament. While funding increases to local authorities and active travel have previously been enough to secure this, the party has already indicated a fundamental reform of local authority funding and taxation will be required to ensure their six votes next February. The Tourist Tax, alongside non-domestic rates, are the key measures Greens want controlled at a local level. This desire therefore makes it unlikely that Derek Mackay can get away with postponing a decision until a consultation concludes.
With every year of the Government’s lifespan, these budgets only get trickier as parties become emboldened to ask for more as their price for support. While income tax and the growing gap between the UK and Scottish governments on upper rates is likely to grab the headlines, politically the Tourist Tax is more crucial. This element, and the potential impacts on tourism and on how local authorities operate, will weigh heavily in Derek Mackay’s calculations. We wait with interest to see if the Government pursues it or gambles on Green support being secured through a less controversial measure.