The Principles of a Local Discretionary Transient Visitor Levy or Tourist Tax

Executive Summary

Introduction

This summary presents notable findings from the Scottish Government's consultation on the Principles of a Local Discretionary Transient Visitor Levy or Tourist Tax. The consultation ran from 9 September to 2 December 2019. The consultation paper is available from the Scottish Government's website at: https://consult.gov.scot/local-government-and-communities/visitor-levy/.

In total, 1,701 responses were available for analysis. Of these, 1,202 were based on a Living Rent-related campaign and did not address any of the questions set out within the consultation directly. The main report focuses on analysis of the other 499 responses received^[1]. Of these, 224 were from groups or organisations and 275 responses were from individuals^[2].

Organisational respondents have been allocated to one of 15 categories by Craigforth and Scottish Government analysts. A diverse range of organisations responded to this consultation, from international hotel groups and local authorities to independent B&Bs and community councils. The two largest groups of organisational respondents were accommodation providers, with 49 responses from hotels and 67 responses from other accommodation providers. The other accommodation providers group included B&Bs, guest houses, caravan parks and campsite businesses.

The comments of a number of individual respondents suggest that they are also connected with the tourist industry and, in particular, may be accommodation providers.

The consultation asked 33 questions, and this summary focuses on some of these. The full analysis across all the questions is set out in the main report.

The focus of the analysis was to consider the range of views submitted, rather than quantify the balance of wider public opinion. All respondents' comments have been given equal weight in the analysis.

As with any public consultation exercise, those responding generally have a particular interest in the subject area and the views they express cannot be seen as representative of wider public opinion.

The balance between local autonomy and national consistency

The consultation paper suggested that there should be some overarching design principles for a visitor levy set out in national legislation. Within this national framework the intention would be to create a balance between national consistency and local autonomy. Three possible options were set out in the consultation paper and there was no clear consensus on this issue among respondents.

A visitor levy set out mostly at the local level with some overarching national principles was supported by 42% of those answering Question 1. Individuals were more likely to favour this option than organisations (50% and 31% respectively). The majority of Local authority respondents supported this approach.

A wholly national framework was supported by 36% of those responding, with organisations much more likely to support this approach than individuals (52% and 24% respectively). Accommodation providers tended to favour this approach.

A visitor levy set out mostly at the national level with some local discretion was supported by 22% of those responding.

Mostly at local level with some overarching national principles: A common theme raised by those favouring this option was that any approach needs to offer enough flexibility for the differing requirements of each local authority area to be considered. An often-connected point was that Scotland's tourism economy is also very diverse and that what might be appropriate for one area would not work in another. Those taking this view suggested that local authorities will know their area best and are best placed, therefore, to make decisions regarding a visitor levy. There was also a view that decision-making should be devolved to as local a level as possible, although there were references to the importance of having some overarching principles to underpin any approach.

Wholly in a national framework: Many of the reasons given for supporting a wholly national framework centred around simplicity – in general, for visitors or businesses. For visitors, it was suggested that a national framework would be less confusing and that a consistent approach would be more easily understood. From a business perspective, the focus was often on minimising the administrative burden, particularly on businesses which operate in more than one local authority area.

Mostly at a national level with some local discretion: The themes raised by those preferring this option were often similar to those highlighted by respondents preferring the 'mostly at local level with some overarching national principles' option. It was also sometimes referred to as being the fairest approach because it would help create a more level playing field for businesses.

The design of a visitor levy

Basis of charge

The consultation paper set out four options for how a visitor levy might apply to an overnight stay in commercially let accommodation and sought views on each (Question 4). There was no clear consensus emerging from responses to this question.

A levy based on a percentage of the total accommodation charge was preferred by the largest proportion of those responding (35%). Individuals and organisations were fairly similar in their support of this option (37% and 32% respectively). The Accommodation provider (other) group were most likely to prefer this approach.

Overall, 32% of respondents favoured a flat rate per person per night. Individuals favoured this approach more than organisations (42% and 18% respectively).

A flat rate per room per night was supported by 24% of respondents overall. Organisations were more likely than individuals to support this approach (44% and 11% respectively). Accommodation provider (hotel) respondents were particularly likely to favour this option.

The consultation explained that the fourth option (flat rate per night dependent on the quality of accommodation) would be difficult to implement given the lack of a compulsory quality rating scheme in Scotland. This option was favoured by 9% of respondents.

A percentage of total accommodation charge: Among respondents who preferred this option, the reason given most frequently was that it is fair or progressive given it is related to the ability to pay and those choosing to use more expensive accommodation would also pay more tax. A percentage charge was also suggested to be well understood, and to be a method of calculation that is widely used elsewhere. Other points made in favour of a percentage charge included that it would reflect seasonal and geographical variations in accommodation prices. A need for clarity on what is meant by 'total accommodation charge' was also noted, particularly with respect to possible inclusion of 'extras' in the figure on which a levy is calculated. Respondents who argued against a percentage charge suggested that it is too complicated, and that the room rate that a visitor levy is applied to, and associated revenue raised, may vary where differential pricing means room rates vary. A risk of a negative impacts on providers of more expensive accommodation was suggested.

Flat rate per person per night: A flat rate per person levy was frequently argued to be simple to implement and to be a mechanism used in other countries. It was also suggested to be fair, since it is individuals who make demands on services. However, a flat rate levy was argued to be regressive and unfair to those on low incomes, with a related risk of negative impact for budget accommodation providers. The tension between making a levy easier to administer and reflecting ability to pay was noted.

Flat rate per room per night: The most frequent reason given for choosing a flat rate per room charge was that this would be simple or the easiest to apply, including because the hotel industry convention is to charge per room per night. It would also be advantageous to couples and families sharing a room but more expensive for single travellers. As with a flat rate per person, it was argued to be regressive.

Flat rate per night dependent on the quality of accommodation: As for a percentage charge, a flat rate dependent on the quality of the accommodation was argued to be fair or progressive since those selecting higher quality accommodation would pay more. However, and as noted in the consultation paper, the lack of any universally accepted rating system would present a major obstacle for a charge based on quality. Such a basis for charging was also thought likely to deter provision of higher quality accommodation.

A majority of respondents, 65% of those answering the relevant question (Question 6), thought that the basis of the charge should be set out in a national framework. The themes raised very much reflected those expressed by respondents who thought that the design of a visitor levy should be set out wholly in a national framework. Other comments addressed fairness and suggested that the basis of the charge being set out in a national framework could help avoid competition between local authorities and distortions developing in the tourism market.

The themes raised by respondents who thought that the basis of the charge should be decided by local authorities also reflected those expressed by respondents who thought that the design of a visitor levy should be mostly at a local level or mostly at a national level with some local discretion.

Calculating the rate

A majority of respondents, 57% of those answering the relevant question (Question 7), thought that the rate of the visitor levy should be set out in a national framework. In terms of the overall approach to be used, it was suggested that the national framework should set out a range within which a rate could be set, but then allow for local discretion as to the precise rate set. However, there was an associated concern that local authorities would be likely to charge the maximum rate permitted. The majority of local authorities favoured the rate being decided at the local level.

In terms of the factors to be considered to ensure the rate of the visitor levy is appropriate (Question 8), a number of the comments reflected the wider objections sometimes raised to the introduction of a visitor levy. For example, it was suggested that factors to be considered should include the competitiveness and reputation of Scotland as a tourism destination and the wider tax regime.

A general theme raised was the need for any decisions to be based on robust evidence, and there were calls for independent economic impact assessments to be carried out. Other comments addressed the local market circumstances which should be considered, with suggestions including visitor numbers, consumer price sensitivity and seasonal variations. A specific suggestion was that there should be benchmarking of the rate against rates being charged in other tourist destinations or countries or, specifically, other European or EU cities or countries.

Other comments focused on the balance between the cost of administering a levy for the local authority, and the cost to businesses of collecting the levy, relative to the revenues obtained.

Exemptions

The consultation paper suggested that there are some groups for whom it would be unacceptable to impose a visitor levy under any circumstances including: homeless people; asylum seekers and refugees; travelling communities; and victims of domestic abuse placed temporarily in refuges or short term accommodation.

A majority of respondents, 78% of those answering the relevant question (Question 10), thought that all exemptions should be the same across Scotland and therefore set out in the national legislation. Some concerns were raised about the feasibility of administering exemptions.

With regard to a range of possible additional exemptions, the highest level of support was for an exemption for those receiving medical care outwith their local authority area and their carers or next of kin, followed by there being exemptions for children and young people or for local residents. The lowest level of support was for business travellers being exempt.

Administration and compliance

Compliance costs to accommodation providers

Respondents were evenly divided as to whether accommodation providers should be ultimately responsible for collection and remittance of a levy (Question 13). Among organisational respondents, Tourism and hospitality industry representative organisations all disagreed with the proposal as did a majority of Accommodation provider (other) respondents, while most other groups agreed or were evenly divided. The need for any remittance system to be set up in consultation with the industry and for this to involve accommodation providers of all types was suggested by respondents irrespective of their view on whether providers should be ultimately responsible for collection and remittance of a levy.

In terms of how frequently the levies collected should be remitted to the levying local authority (Question 14), the highest level of support, at 40%, was for remittance of levies to local authorities on a quarterly basis, with 30% preferring monthly remittance and 25% annual remittance. While a large majority of the Accommodation provider (hotel) group preferred quarterly remittance of levies, those in the Accommodation provider (other) group were more likely to favour remittance on an annual basis. Local authority respondents preferred monthly remittance.

Local authority administration and enforcement

The consultation paper noted that if accommodation providers are responsible for collecting and remitting a visitor levy, the local authority must be able to receive such payments. This would require knowing which businesses, premises or individuals should be remitting receipts and having powers to enforce the legislation. Most frequently, respondents commented on the need for a registration scheme, or specifically that any local authority wishing to charge a visitor levy would need to set up a registration scheme or introduce a licensing regime.

In terms of the enforcement powers a local authority should have to ensure compliance and prevent avoidance and evasion, respondents most-frequently suggested some form of civil penalty, often referring to a fine or penalty charge. Other comments suggested that non-compliance could or should result in a provider no longer being able to let their accommodation or their premises being closed.

A majority of respondents, 58% of those answering the relevant question (Question 18), thought that non-compliance by an accommodation provider should be subject to a civil penalty (i.e. a fine). Individual respondents were more likely to think civil penalties to be appropriate than were organisational respondents (61% and 53% respectively).

Local decision making

Local authorities wishing to implement a visitor levy

The consultation paper set out a list of possible requirements that local authorities could be expected to meet before being able to introduce a visitor levy. Examples included having held a consultation in their local area to gather views from all those who will be affected by the visitor levy and having conducted the required impact assessments.

Support was at a consistently high level across all the options - ranging from 96% to 82% of those answering the question (Question 19) agreeing with the requirements. The requirement attracting the lowest level of support was a timeframe for introduction of at least one financial year following conclusion of consultation and engagement activities.

With regard to whether the Scottish Government should be able to prevent a local authority from applying a visitor levy, 57% of those answering the relevant question (Question 20), thought they should. In terms of under what circumstances the Scottish Government should be able to do this (Question 21), a frequent comment was that the Scottish Government should be able to prevent a local authority from applying a visitor levy if it has not, or cannot demonstrate that it has, gone through the necessary steps or met the requirements set out at Question 19.

There was a call for robust evidence to be in place relating to whether a levy would be of benefit to the local community, tourist industry and businesses and whether it would have a negative impact on the local tourist economy. It was suggested that the Scottish Government should be able to prevent the introduction of a visitor levy where there is evidence that the decision is detrimental to local business interests and the wider Scottish tourism sector.

How revenues should be spent

The consultation paper noted that the intention is that receipts from a visitor levy within a local authority area should be spent on tourism-related activities, including responding to tourism pressures, in that local authority area. The consultation sought views on whether, where a local tourism strategy exists, a local authority should allocate revenues towards delivering the priorities articulated in this strategy.

A majority of respondents, 73% of those answering the relevant question (Question 24), thought revenues from a visitor levy should be allocated to priorities articulated through local tourism strategies, where they exist. There were only two types of respondent (Community council or residents' association and Trades union, political party or campaign organisation respondents) amongst whom the majority did not support this approach.

Articulated through local tourism strategies: Respondents who thought revenues should be allocated in line with local tourism strategies often commented that spend should be focused on, or restricted to, specific tourism-related activities. It was also suggested that having a local tourism strategy in place should be compulsory or that having a strategy in place should be a condition of being able to charge a visitor levy.

There were specific references to tourism development activities being the only appropriate focus of spend or to monies being ring-fenced for tourism-related infrastructure in the relevant local authority.

Not articulated through local tourism strategies: Those who did not think revenues from a visitor levy should be allocated to priorities articulated through local tourism strategies often focused on alternative priorities for spending. The themes raised, and alternatives suggested, were often similar to those identified by respondents who did think revenues should be allocated to priorities articulated through a tourism strategy but who thought that other sectors, such as culture, or public services should benefit as well.

Other comments included that revenues should be spent to benefit both local residents and visitors. There were references to spending on local infrastructure, such as on maintaining the road network. It was sometimes simply noted that priorities should be a matter for local authorities to determine.