Tourism tax: messages from the national discussion

Annex D

National Discussion on Tourist Tax
Fourth Round Table Discussion, Newton St Boswells
Wednesday 19^th December 2018

Attendees

Aileen Campbell MSP, Cabinet Secretary for Communities and Local Government

Bettina Sizeland, Deputy Director, Tourism & Major Events, Scottish Government

Kevin Brady, Senior Economist, Directorate for the Chief Economist, Scottish Government

Kay Barclay, Principal Research Officer, Scottish Government

Jonathan Ferrier, Tourism Team, Scottish Government

Richard Walsh, Tourism Team, Scottish Government

Sarah Simpson, Tourism Team, Scottish Government

Gillian Cross, Private Secretary, Scottish Government

Cllr. Gordon Edgar, Executive Member for Roads and Infrastructure, Scottish Borders Council

Cllr. Carol Hamilton, Executive Member for Children and Young People, Scottish Borders Council

Cllr. Mark Rowley, Executive Member for Business and Economic Development, Scottish Borders Council

David Gardiner, Business and Enterprise Manager, Dumfries & Galloway Council

Susan Smith, Economic Development, East Lothian Council

Marco Trufelli, MD North East UK, MacDonald Hotels,

Bruce Simpson, Communications Executive, Scottish Borders Chambers of Commerce

Jack Clark, Chair, Scottish Borders Chambers of Commerce

Michael Cook, Corporate Policy Advisor, Scottish Borders Council

Gavin Mowat, Policy Advisor (Rural Communities), Scottish Land and Estates

Marc Crothall, Chief Executive, Scottish Tourism Alliance

Kate Innes, Partner/Proprietor, Tontine Hotel Peebles,

Lady Catherine Maxwell-Stuart, Chair, Tweed Valley Tourism BID

Willie MacLeod, Executive Director Scotland, UK Hospitality

Duncan McConchie, Laggan Outdoors (via SKYPE)

Introductory Remarks

1. The Cabinet Secretary opened the discussion event, which was the fourth of a series of events to support the national discussion. The Cabinet Secretary observed that tourism taxes are a complex topic and tourism’s role as a national growth sector, and the requirement for primary legislation should any tourism tax powers be devolved to local authorities, necessitated national consideration.

2. The Scottish Government was not seeking to consult on a discrete policy proposal through the national discussion. The national discussion events were an opportunity to discuss the evidence and views associated with Tourism Tax, marshalled under the four themes from the Scottish Government discussion paper.

3. As well as the discussion participants, other stakeholders in the discussion would be able to view the discussion paper online and email evidence into a dedicated email address. The Scottish Government would look to publish a high level readout of the national discussion events, along with evidence provided by stakeholders.

4. The Cabinet Secretary also identified the broader context of relevance to discussions around tourist taxes. This included retained issues such as VAT rates, and also areas like the Local Governance Review and broader discussions around greater autonomy for local government in Scotland. Within this context, the Cabinet Secretary noted that CoSLA had published a policy paper on Transient Visitor Levies in June 2018, which advocated greater discretionary powers for local authorities in this regard.

5. The Cabinet Secretary also noted the importance of tourism as a growth sector, both to Scotland overall and to the South of Scotland, and highlighted several areas of Scottish Government support for the sector. The Cabinet Secretary then invited Kevin Brady to provide an overview of the Scottish Government’s discussion paper.

Scottish Government Tourism Tax Discussion Paper

6. Kevin Brady provided an overview of the discussion paper. It was emphasised that the purpose of the discussion paper was to provide evidence to inform the national discussion; it was not intended to present a Scottish Government policy position, or advance a case ‘for’ or ‘against’ a tourism tax.

7. The discussion paper set out the Scottish Government’s general economic policy context, and the principles influencing Scottish Government thinking on tax (the ‘Adam Smith principles’); evidence on tourism in Scotland; discussion around taxes on tourism businesses, and occupancy taxes (aka tourism taxes, or transient visitor taxes) in other countries; and issues raised from international evidence and experience that could be relevant to the discussion. It also highlighted key messages from recent EU work on tourism taxation, which emphasised the importance of balancing revenue considerations with maintaining industry competitiveness.

8. The discussion paper also set out four broad themes, with a number of supporting questions to help guide the discussion. These were:

• What would the reasons be for introducing a transient visitor tax?
• What would a well-designed and operated transient visitor tax look like?
• What positive and negative impacts could a transient visitor tax have?
• How could a transient visitor tax be used, and how can revenues be distributed fairly?

The discussion event would be broadly structured around these four themes, with the supporting questions within them acting as prompts for discussion.

General Discussion

9. There then followed a general discussion around the questions raised in the discussion document, and around the broader issue of tourist taxes. During the discussion, the following points were noted:

• Some attendees observed that the Tourism Tax debate appeared to be driven by perceived pressures from visitor numbers in areas such as Edinburgh and the Highlands. In contrast, a key concern of local authorities in the south of Scotland was to drive the growth of sustainable tourism in the region.
• Tourism industry representatives welcomed the discussion events and the Scottish Government’s discussion paper, observing that the paper was even-handed and balanced. Industry representatives expressed concerns that discussions on tourist taxes were moving to discuss design issues too quickly, before agreement on the broader rationale for such taxes.
• Industry representatives also highlighted the higher rate of VAT on accommodation applied in the UK compared against other EU countries; UK Hospitality’s estimates of economic impact of a tourist tax; and existing evidence on price sensitivity of tourists.
• Industry representatives expressed concerns that there were perceptions that tourist taxes would only apply to overseas visitors, and highlighted the reliance of areas like the South of Scotland on visitors from Scotland and the rest of the UK. Industry representatives also expressed concerns about potentially negative signals from introduction of a tourist tax, the potential for additional costs to business arising from compliance and implementation of a new tax, and concerns about pressures on current profitability within the sector, despite increases in visitor numbers.
• Industry representatives queried the timing of broader discussions and proposals around tourism taxes, particularly in light of uncertainties and risks arising from Brexit. Concerns were also expressed that the debate was informed by misperceptions of overcrowding in Scotland, arising from localised challenges in areas like Edinburgh, Skye and Orkney, which did not reflect the national picture.
• Industry representatives suggested that introduction of a tourist tax in areas like Edinburgh would have negative spillover effects on tourism in other areas of Scotland, particularly in light of its role as a gateway to Scotland, and specifically to areas like the Borders and South of Scotland.
• Industry representatives suggested it would be difficult to introduce a tourist tax in one area of Scotland without a wider signal being sent about Scotland as a destination. The importance of tourism in the Scottish Borders, particularly to the sustainability of the economies of small towns, particularly supply chains, and the difficulties faced by the Scottish Borders in attracting visitors were also highlighted.
• Accommodation providers set out challenges facing small hotels. These included rising labour and workforce costs, such as the National Living Wage and workplace pensions; rising input costs, such as costs of food and drink; increased competition from short term lets through platforms like AirBnB; business rates and the application of the Large Business Supplement to hotels; and the current rate of VAT on accommodation, which posed challenges for profitability. Challenges around recruiting staff, particularly in light of uncertainties around Brexit, were also highlighted.
• Local Authority representatives advised that, though related, support for tourism investment and approaches to funding local government were separate issues, with solutions to the latter issue being wider than a tourist tax. However, it was recognised that one of the broader drivers behind debates on tourist taxes were calls from local authorities for greater autonomy. Local Authorities representatives also expressed concerns that the devolution of the power to levy a tourist tax could create expectations that it should be used, regardless of local circumstances.
• Industry representatives highlighted challenges of building sustainable tourism sectors in areas like Dumfries and Galloway, particularly given issues of seasonality and the visibility of the area. While some progress had been made, and initiatives like the South of Scotland Partnership were welcome, there were still significant challenges to overcome.
• Industry representatives recognised the challenges around local government funding, but argued for consideration of alternative methods of funding tourism needs, with suggestions including reform of the Small Business Bonus Scheme, hypothecation of VAT receipts, or hypothecation of business rates to support tourism infrastructure.
• Attendees highlighted the importance of public-private collaboration and partnership working to develop tourism across Scotland, and in the South of Scotland. Attendees also emphasised the importance of marketing the Borders and Dumfries & Galloway more strongly to visitors.
• While Tourism BIDS were highlighted as one route to support additional investment in tourism infrastructure, influenced by the sector, a number of challenges around delivering these in practice were articulated by industry representatives.
• Industry representatives raised concerns about the cumulative impacts of further increases in taxation, and the risks posed by reversal of wider economic conditions that had supported tourism growth in recent years, particularly regarding currency.
• In general, attendees expressed concerns about the appropriateness of tourist taxes in areas like the South of Scotland, in light of priority of attracting greater visitor numbers and spend to the area, the existing challenges associated with doing so, the challenges and uncertainties posed by Brexit, and the desire on both the part of industry and the Local Authorities to build a sustainable tourism sector in the area.

Concluding Remarks

10. The Cabinet Secretary thanked the group for attending the discussion event, and for their contribution to the discussion. Attendees were reminded all that a minute of the discussion would be published and the points raised would be considered along with the points from the other discussion events.

11. The Cabinet Secretary also reiterated that participants were invited to provide contributions in writing to the Scottish Government.

Tourism Team
December 2018