Short-term lets: business and regulatory impact assessment

H: Scottish Firms Impact Test

184. The firms most affected by this legislation are hosts and operators providing accommodation, where they are set up as businesses. However, as discussed in section B1.1, it is challenging to gauge the full size of the short-term lets market, as providers are able to offer accommodation ranging from shared rooms, single rooms, whole homes and other unconventional accommodation; these include domestic and commercial properties.

185. Self-catering properties, B&Bs and guest houses registered on the NDR valuation roll are particularly likely to be set up as businesses: Table 1 shows that on 1 April 2021 there were 19,615 such premises. However, there are also a number of premises operating as commercial accommodation providers that are registered for council tax, rather than Non-Domestic Rates. While at present there is limited data on the scale of this section of the accommodation sector, over 1,400 small accommodation providers on the council tax roll had received COVID-19-related grant support through the Small Accommodation Providers Paying Council Tax Fund by late-April 2021^[70]; this included bed and breakfasts, guest houses, and self-catering premises.

186. One of the conditions of the Fund was that business receipts represented a primary source of income (one third or more of earnings)^[71]; therefore, the number applying for grants provides an approximate estimate of commercial short-term let operators on the council tax roll, although it will be affected by factors such as the level of take-up. In addition, there will be hosts with accommodation on the council tax role who are undertaking activities such as home sharing, etc., which are a supplementary source of income rather than constituting a business per se.

187. There is also a whole ecosystem around the provision of short-term let accommodation ranging from platforms such as Airbnb, booking.com and Expedia through to hosting intermediaries and holiday letting agencies. In section C3 above, and in the 2020 and 2021 consultation reports, we have set out how we have engaged with all the different types of actor in the system, and in Section E above we have set out the various costs and benefits of regulation to the different actors.

188. The STAA, Airbnb and ASSC have made strong representation on behalf of hosts and opertors. Airbnb has stated that they considered the proposed regulatory system to be complex, costly and unfair for hosts^[72]. During the 2020 consultation, Airbnb published a table setting out the steps that hosts would need to take to comply^[73]. They said:

The Scottish Government is consulting on a new licensing and planning framework for short-term lets, coming into force in April 2021. We think it's complex, costly and unfair for hosts. Find out more about what the Scottish Government has set out below, and speak to your local politician with your thoughts on how this will affect you.

189. These steps are set out at Annex D, together with the Scottish Government's comments.

190. The ASSC has also engaged its membership and with the Scottish Government and the principal concerns expressed in response to the 2021 draft BRIA are set out at Annex E.

191. As has been discussed in section G3, we do not anticipate that the introduction of the licensing system will have a significant negative impact on short-term let operators and hosts. This is because responsible hosts and operators will already be complying with most if not all of the mandatory licensing conditions. We also do not anticipate that the licence fee will impose a disproportionate cost on businesses. In section F4, we have set our estimates of likely fees and scaled them to typical earnings to support this conclusion.

192. With respect to small and micro businesses, there is one licence required per premises, which means that small and micro businesses operating in only one premises should only need one licence. Furthermore, as discussed in section F4, Scottish Government guidance will make clear that local authorities should put in place a tiered licensing fee structure. This should help avoid creating a barrier to small and micro businesses.

193. The imposition of a licensing system across Scotland is not expected significantly to inhibit the competitiveness of Scottish firms with the rest of the UK and the world. This is because a visit to Scotland is not a service which is (in economic terminology) a perfect substitute for a visit to another country, which means that the price elasticity^[74] of demand is not as high as is the case for goods and services which are easily tradeable or substitutable. That said, at the margin, if additional costs due to the licensing system were to push up the cost of short-term let accommodation significantly, this could lead to visitors to choose to travel to other countries^[75]. However, as discussed above, we anticipate that the licencing system will not impose a disproportionate burden on hosts and operators. The licencing system is also expected to provide compensating benefits to hosts and operators by increasing consumer confidence in their offering; this may be particularly important for international travellers who might otherwise find it harder to know how to obtain reliable information on the safety of different types of accommodation.