Growing calls for a tourist tax in Scotland have triggered a debate about how we should finance the infrastructure needed to support growth across the sector.

Roland Smyth, head of Scottish hotels & leisure group at law firm CMS shares his insight.

Some leading public figures, including former Edinburgh Council leader Donald Anderson, argue that an additional charge on hotel rooms is essential to pay for public facilities and further services needed to support tourism. Similar views have been expressed by some politicians in rural areas.
While supporters of a tourist tax claim that adding a few extra pounds to a hotel bill will not affect visitor numbers, I disagree. International tourists visiting Scotland already face among the highest levels of VAT and air passenger duty in the world. An additional levy would send out the wrong message in a global market where there is an abundance of choice for the consumer.

Many independent studies into the impact of tourist taxes support this view.

Tourism to Scotland currently generates around £12bn of economic activity, contributing around £6bn to GDP and accounts for over 200,000 jobs.

PwC published a study for the European Commission at the end of last year warning of the potential impact of imposing a blanket surcharge on visitors. It highlighted how increasing consumer sensitivity to pricing can make tourist taxes a barrier to attracting visitors.

The PwC report looked at the UK in particular. It estimated that the impact on the accommodation sector of a three per cent room charge would be a £376m reduction in GDP and 9,010 lost jobs. And at the wider UK economic level, PwC thought the result could be over 23,000 lost jobs and a £1.18bn hole in Britain’s GDP.

A report by American Economics Group raised concerns about how a hotel room tax can also divert tourism expenditure from other parts of the industry, such as restaurants or entertainment providers, with a knock-on impact on the wider economy.

Collecting a tourism levy would also be an administrative burden for hoteliers. That would be particularly the case if the suggestion by some that a tourist tax should be imposed on a flexible basis, with different charges depending on the time of year, were to come to fruition.

The hotels industry remains highly labour-intensive – and hotel owners already face financial and operational challenges such as the living wage, the apprenticeship levy, and falling EU worker migration as Brexit looms ever closer.

While those in favour of the additional tax believe hotels could simply apply it on top of their existing prices, it simply may not be possible at the “sweet” price-points such as £49 per room common at Scottish budget hotels. It could well therefore be hoteliers, rather than visitors, who would have to bear the extra burden in a competitive marketplace that can operate on tight margins.

With Edinburgh on the brink of becoming a truly global city, on a par with the likes of Paris, Toronto and Sydney, do we really want to be sending out a signal that Scotland is less willing to welcome tourists? The capital’s ratio of visitors to permanent residents (8:1) is still far lower than cities such as Barcelona (20:1) and Venice (113:1), but there are understandable concerns about Edinburgh’s Old and New Towns, and other popular Scottish destinations such as Skye, being over-saturated with tourists. Rather than imposing levies, however, we could follow Amsterdam’s lead in developing creative solutions that help protect local residents’ quality of life by opening up new tourist-friendly areas away from the usual hotspots.

There is also no guarantee that proceeds from a tourist tax would support tourism. At a time where Scottish local authorities’ balance sheets are under pressure as never before, would a council always ring-fence the proceeds as additional funds on top of existing funding? Indeed, at the end of February, Scottish Labour MSP Monica Lennon called for any tourist tax revenues to be spent on public services for local communities, arguing “We must now start giving back to the communities that have made [Scotland’s tourist industry] such a success.

Reassuringly for hoteliers, the current Scottish Government position is clear. Earlier this year Holyrood’s Culture and Tourism Minister Fiona Hyslop told the British Hospitality Association she had ‘no plans’ to impose any additional tourism-related tax and would only ever consider such a move with the involvement of the hospitality industry to ensure its long-term interests were fully recognised.

Given its growing economic contribution, both public bodies as well as private sector operators need to look at alternative means of providing the infrastructure required to support the tourism sector’s needs.

It took five years of hard work by Edinburgh Airport chiefs to secure direct flights from China. We must avoid sending out a negative message to potential international visitors, and make it clear to the world that Scotland’s tourism sector is open for business


Roland is Of Counsel in the Scottish Real Estate and Hotels teams, and is head of our Scottish Hotels team. He specialises in high end commercial property work and has  extensive experience in all aspects of commercial property, including sales, purchases, development, property financing, options and leases for a range of clients including institutions, funders, developers and tenants. He has also been involved in a number of high-profile cross-border CMBS (commercial mortgage-backed securitisations). He also has a wealth of student accommodation expertise built up over 15 years. Roland has been a Scottish qualified lawyer since 1999.

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