Visitor Levy Bill: business and regulatory impact assessment

7. Summary and Recommendation

7.1.1 The Bill, if passed by the Scottish Parliament, will introduce a discretionary power enabling local authorities in Scotland to apply an additional tax on overnight stays in commercially let accommodation. The revenues raised can be used for the purpose of developing, supporting and sustaining facilities and services which are substantially for, or used by, those visiting a local authority's area for leisure purposes. The visitor levy will be calculated on the basis of a percentage of the accommodation charge and will be added to the bill of any visitor purchasing accommodation in the relevant area.

7.1.2 Under the provisions of the Bill, local authorities will have autonomy over the decision to introduce the levy, the decision as to which areas it will apply to (either the whole local authority area or part(s)) and the decision on the rate at which the levy will be set, including the flexibility to adjust the rate to account for seasonal variations in visitor demand. Local authorities will also have the flexibility to exempt certain groups of visitors (or types of accommodation) from being liable for the visitor levy in their area, taking into account national guidance.

7.1.3 Local authorities will have flexibility in how they choose to administer the levy, and the Bill will create a number of enforcement powers to assist in the efficient administration of the levy. These powers are partly based on those applying to devolved taxes in general, set out in the Revenue Scotland and Tax Powers Act 2014, and reflect practices used in other taxes such as Non-Domestic Rates.

7.1.4 A primary objective of the Bill is to strengthen local democracy in Scotland through providing local authorities with a new tax raising power. The Bill will also support sustainable growth of the tourism sector across Scotland by providing the opportunity for local authorities to raise additional resources to be used to develop, support and sustain facilities and services which are substantially for, or used by, those visiting a local authority's area for leisure purposes.

7.1.5 This BRIA has considered in detail the available evidence on the costs and benefits arising to several groups that may be affected by the introduction of a visitor levy should a local authority exercise the powers conferred on them in the Bill. This includes the benefits and costs to local authorities, accommodation providers, visitors to local authorities, residents of local authorities, the wider businesses community, and the Scottish Government. The table below summarises the findings in this BRIA.

Table 9: Summary of costs and benefits associated with option 2 (Introducing a Visitor Levy Bill)

Groups affected by the introduction of a visitor levy

Option 2 – Visitor Levy Bill (Benefits +, Costs -)

Local Authorities

+ Improved local empowerment via a new discretionary tax power which will enable local authorities to raise revenues in order to develop, support and sustain facilities and services which are substantially for, or used by, those visiting a local authority's area for leisure purposes. Potential revenues for each local authority are dependent on characteristics of local schemes adopted (rates, area covered, exemptions and other factors). High level estimates of potential revenues are set out in Annex A.

+ A new source of revenue to be used to develop, support and sustain facilities and services substantially for or used by visitors

- New administration costs associated with a levy. Costs related to a consultation and decision-making around governance and use of revenues, as well as communications with stakeholders. Additional set-up costs and on-going administration costs will be met by revenues raised by the levy, however there is uncertainty with regards to the potential scale of costs. Evidence suggests requirements for 3-5 new FTE staff, procurement and maintenance of IT systems and operational budget. Indicative estimates of on-going costs range from £190,000 to £500,000 per year per local authority.

Visitors

+ Indirect benefits from the use of revenues raised to develop, support and sustain facilities and services substantially for or used by visitors, with a potential positive impacts on visitor experiences of destinations within Scotland. Potentially direct benefits if revenue is used to fund programs such as discounted travel for visitors.

- Potentially higher accommodation prices in parts of Scotland applying the visitor levy. Visitors that pay more for accommodation are expected to generally see a greater cash increase in prices due to the percentage basis of levy.

Wider businesses community in areas applying a visitor levy

+ Indirect benefit from use of revenues raised to develop, support and sustain facilities and services used by visitors, with a potential positive effect on destination competitiveness.

- Increase in price of accommodation may affect future visitor demand potentially leading to lower spending in some areas or displacement of spending to areas of Scotland not applying a visitor levy.

- Higher accommodation prices for staff of businesses using accommodation during a business related trip to parts of Scotland applying a visitor levy.

Residents

+ Indirect benefit from use of additional revenues raised to

develop, support and sustain facilities and services which are substantially for or used by visitors, with a potential positive effects where local authorities invest in goods and services also used by local residents (local infrastructure, maintenance of public spaces).

- It may be the case that residents that choose to use commercial accommodation in a local authority area in which they are also resident would pay a higher price for that accommodation due to the introduction of a visitor levy in their area.

Scottish Government

+ Reputational benefits associated with delivering a key ask of local government in Scotland.

- Some resources costs associated with passing the Bill through parliament, and developing guidance for local authorities. Future increase in subsistence costs for staff requiring accommodation as part of official business travel to areas of Scotland applying the levy.

7.1.6 Should a local authority choose to introduce a levy, the Scottish Government would encourage them to carefully consider the governance arrangements around a visitor levy, ensuring transparency in the use of revenues with priorities established after consultation with local stakeholders. Clear communications with visitors and residents as to the use of revenues should be established, as well as a monitoring and evaluation strategy with reporting on impact of a particular scheme every 3 years as set out in the Bill.

7.1.7 Before implementing a levy, we would also encourage local authorities to consider the sensitivity of visitor demand locally when choosing the rate at which the tax is set, given the potential for adverse impacts on visitor demand from large tax driven changes in accommodation prices. Local authorities should also consider the likely administrative costs involved, and seek to minimise compliance costs for accommodation providers.

7.1.8 Whilst there is a careful balance to be struck in the exercising of the powers in the Bill, and it is recognised that not all areas will see the levy as a strategic fit for their area. International evidence suggests that taxes such as a visitor levy can be a valuable source of revenue for local governments, and any impacts on visitor demand from a well-designed visitor levy appear negligible. Whilst price is an important factor in the decision making of visitors, it is clearly not the only motivation which attracts visitors to Scotland. Investments in the visitor economy in areas that introduce a visitor levy will help advance the aims of the national tourism strategy, and create and develop sustainable visitor locations to advance Scotland's tourism sector in the future.