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Why the proposed Edinburgh room tax is a bad idea

“This could be the breach in the dyke.”

Michael Hirst, chairman of the Business Visits and Events Partnership (BVEP) refers to a tax to fund UK tourism infrastructure and marketing and, specifically, the latest proposal in Edinburgh to charge overnight visitors a £2 per person per night ‘room tax’.

Interestingly, it comes at a time when the Edinburgh Convention Bureau has just had its budget slashed so if it gets the nod from the Scottish Government, it could provide a stitch in time for the beleaguered folk in the Scottish capital.

And others might then follow suit. Local authorities up and down the UK have long debated the potential for a tourism promotion fund – particularly in the meetings sector – paid by the tourist or delegate. Lots of overseas destinations do this and it works very well. In Las Vegas, for example, hotels and accommodations levy a tax of between 10-13 per cent via the local authority of Clark County and this cash is exclusively used for tourism marketing.

However, nothing is straightforward. Hirst says such a tax is iniquitous because it isn’t progressive. He also says other suppliers who benefit from tourism should contribute, rather than just accommodation providers. He said: “We believe it is not the best way to go – all the businesses who benefit from tourism should be included rather than singling out overnight visitors and hotels.”

He also points out that tourists to the UK already pay among the highest taxes in Europe because of Britain’s 20 per cent VAT levy. He adds: “Great Britain’s competitiveness in terms of rates (highest VAT in Europe) depends on this. This high rate of VAT – some of our EU competitors only levy a 5 per cent VAT rate on tourism products – plus our minimum wage add to the rates charged by hotels.”

But while Hirst accepts that tourism does require investment and adds to the local authority’s costs, he suggests there are easier targets to raise revenues such as museums and galleries. He said: “I do think this is the start and the Scottish Government is bowing to Green Party political pressure but I don’t think this approach is the right solution.

The Tourism Alliance – a collection of travel industry trade bodies – has published a position paper on the subject called ‘Destination Tourism Funding in England’ (carefully leaving Scotland out of their discussions). It says that at the national level, core public funding for VisitBritain and VisitEngland has decreased from £52m to £28m per annum and the £60m of central Government funding allocated to destination marketing in England via the Regional Development Agencies has been abolished.

At the local level, the public funding provided by councils has decreased by 52 per cent since 2007, meaning that total public funding has fallen by 72 per cent in real terms. So, clearly, either the gap must be plugged or the UK will lose out to its competitors.

But rather than a room tax, The Tourism Alliance supports both voluntary donations (by tourists) and voluntary agreements (by the private sector).  My experience of voluntary donations leaves me with a cynical view of their effectiveness but let’s hope the Tourism Alliance can prove me wrong.

The Tourism Alliance also supports Business Improvement Districts (BIDs) or Tourism Business Improvement Districts (T-BIDs) but these are short-term projects limited to geographical regions and so unlikely to help the UK’s long term international marketing aspirations.

My vote would be for a tourism tax but the Tourism Alliance claims tourists in the UK are already among the most highly taxed in the world. The problem is that central government hoovers up the receipts and it isn’t spent on tourism.

The World Economic Forum ranks the UK’s tourism industry as the 5th most competitive in the world. However, in terms of price competitiveness, the UK ranks dismally at 135th out of 136 countries. This ranking is primarily due to the level of tax that visitors pay via Air Passenger Duty, VAT on accommodation and Fuel Duty. The Tourism Alliance estimates that, in just VAT payments alone, visitors contribute around £21.5bn to the exchequer each year.

So what we apparently need, is not more tourism tax, we just want the existing tax from the receipts from tourism to be invested back into tourism, rather than spending it on a new House of Lords, for example, or more civil servants to not deliver Brexit, or Priti Patel’s travel expenses, or a train line that takes us to Birmingham 20 minutes faster or… I rest my case.