Local Visitor Levy? It's Not Simple

In the latest Programme for Government, the Scottish Government announced it planned to bring forward legislation permitting local authorities power to introduce a local visitor levy from as early as 2026. The question is, how can this new legislation be used to improve the outlook for the tourism industry and local communities while limiting the risks?

First, we first need to consider the wider context. There are many countries around the world with an effective visitor levy, however, compared to Scotland the overall tax levels on tourism in many of our competing destinations are significantly lower – the visitor levy is a small part of the bigger picture. A European Commission report in 2017 found a tourism-friendly tax regime could reduce taxes on businesses and improve price competitiveness, with examples such as Finland, Sweden and Cyprus.?In 2019 the World Economic Forum found UK tourism to be 140th of 140 countries on price competitiveness. Since 2019, there have been the impacts of Brexit, a staffing crisis, the cost of business has skyrocketed, and the cost of living steeply rising means people have less money to spend on travel. Finally, the global pandemic has caused unimaginable challenges for the sector.

The tourism industry is resilient and has shown strong leadership throughout an ever-changing climate. Demand has still not returned to pre-pandemic and is not forecast to for a number of years, so it is still very much about survival and a path to a sustainable recovery.

Add to this, the legislative changes are making business more complicated and more expensive to the consumer. From April the rateable values of businesses will be subject to change, forecasted rates are visible on the Scottish Association of Assessors. There are many examples of businesses that have not developed or expanded as a result of the impacts of Covid, cost pressures or otherwise, which will lead to higher business costs. The Short Term Let licensing was developed to address specific issues, however, for the many who operated safely and effectively and whose livelihoods depend on it, there is more cost and more administrative time. The Deposit Return Scheme aims to tackle climate change and litter, something the industry is very supportive of, however, it will see businesses be responsible for adding a charge to single-use containers and having more administration and costs. So, with all this in mind, let’s consider the concept of a local visitor levy.

The industry has a spectrum of views, many are against it, some are supportive, and ultimately who wouldn’t want to see millions being invested in tourism?

There are many considerations, it must have a clear national model. It must provide clear parameters that avoid creating national confusion and neighbouring businesses across local authority boundary lines having differing conditions.

What will it cost? We’ve seen the Highland Council projection that ￡5-￡10 million will be generated. There must be clear guidance in the legislation that limits the maximum cost to visitors and prevents a loss of trade. It should have clear guidance for seasonality because a set charge on a peak season price has very different impacts to the low season – where attracting visitors is a long-term challenge to creating a sustainable business climate with year-round jobs and opportunities for local people.

Who really pays for it? As price increases, demand decreases, so with an additional charge facing visitors, it is reasonable to expect there will be some reduction in demand and this will directly come from business income. There is a real risk this could unintentionally lead to the displacement of funds, as businesses lose money through reduced demand, but funds are created by visitors to invest locally. There also needs to be a consideration for which businesses it applies to and importantly, who should be excluded for the right reasons. It must avoid unintended consequences such as reaching the vat threshold, business rates impact or creating additional costs for businesses. Any wise leader of an organisation should insist there is a robust business and regulatory impact assessment done, in our case for the Highlands, before any such decision to press forward with the introduction of a levy is agreed.

So where do the funds go? There needs to be clarity on what is expected from local authorities in terms of the governance of the funds. It should be clear what national and regional priorities it can be put towards and most importantly, specifically for tourism benefit. Finally, what should it be called so visitors understand the connection between the increased cost and the positive impacts it is hoped to achieve.

What comes next? The Scottish Tourism Alliance, of which I am a director, have widely consulted the industry to produce a local visitor levy manifesto which has been submitted to the Scottish Government. It provides evidence-based recommendations to shape the legislation for the interests of the industry and its successful delivery. It is hoped for a positive response and a willingness to work together for thought through and functional legislative approach.

The industry remains resilient, and the Scottish Tourism Alliance continues to provide excellent leadership in presenting a clear picture and willingness to work together with the Scottish Government. We remain hopeful of returning to a sustainable climate for businesses to operate in, where tourism contributes to jobs, and a thriving economy and creates vibrant places to live can be.

In isolation, ￡5-10 million of funds to invest in tourism in the Highlands seems like good news, however, it is not simple, and the full economic case and tax implications need to be carefully considered.