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.