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The Problem with Bed Taxes
9 March 2020
There is no doubt that tourism is large, successful and growing industry in the UK, employing millions of people and generating revenue of around £145bn for the UK economy. Despite significant external headwinds, the industry has been growing at around 3% per annum and will continue to grow in the long-term.
This success has, however, also resulted in growing pressures on the public purse. In response, local authorities are increasingly calling for Government to provide them with powers to tax tourists (usually by way of a bed tax) in order to pay for the provision and maintenance of public services and facilities.
Edinburgh city council is pressing ahead with the UK’s first overnight tourist tax following a change in legislation by the Scottish government. The introduction of tourist taxes in Scotland is likely to fuel calls for a similar levy elsewhere in the country. London’s government has already shown interest. The London Finance Commission identified the potential for a tourism levy in London as part of its recommendations for greater fiscal devolution to the capital. Such a tax would require new legislation, but in the meantime the GLA is consulting on the feasibility of introducing a voluntary overnight levy across London.
However, claims that a tourism tax is justified because tourists do not “pay their way” misses two key facts.
The first is that tourists in the UK already pay the highest level of tax imposed on visitors to any country in the world. The World Economic Forum, in the biennial assessment of the competitiveness of global tourism destinations, ranks the UK last out of 140 countries in terms of price competitiveness. This is because visitors pay the world’s highest rate of Air Passenger Duty (APD), full-rate VAT on accommodation, restaurants and attractions as well as one of the highest tax rates on fuel. It is estimated that these taxes generate about £25bn every year for the Exchequer. Overseas destinations that already charge tourism taxes invariably have lower APD and VAT rates, so the overall level of taxation faced by visitors is still lower than in the UK. For example, Paris and Rome both charge a bed tax of 5 – 6 euros, but apply a reduced rate of 10% VAT on accommodation meaning that the overall level of tax is around the 15% while the VAT on accommodation in London is already 20%.
The second problem with the call for a tourism tax is that the vast majority of visitors to destinations in the UK are day visitors. The Tourism Alliance has calculated that, on average, only around 3% of visitors to a destination stay in accommodation where a tourism tax could be applied. Therefore, by implementing a bed tax, you would end up with the inequitable situation of asking a relatively small number of overnight visitors to pay for the other 97% of visitors to a destination. More importantly, however, overnight visitors are the most beneficial to the local economy because they stay in hotels and eat in restaurants. By taxing them, you would simply encourage them to become day-visitors — which would detrimental to the local economy.
As mentioned above, tourists already generate around £25bn in tax each year. A solution is, therefore, to develop a mechanism whereby even just a small percentage of this revenue stays in the destination, to maintain and develop the assets that the tourism industry relies upon.
Alternatively, there is already a mechanism in place that enables councils to collect additional funds from tourism-related businesses to maintain the public purse — Business Improvement Districts. BIDs were introduced specifically with this in mind. They allow funding to be collected from all businesses that benefit from tourism (rather than just those that benefit from overnight tourism) and for tourism businesses and councils to work together on agreed programmes for maintaining and enhancing the services and facilities used by tourists.
Simply imposing yet another tax on visitors only makes London less competitive than its international rivals.
Kurt Janson is Director of the Tourism Alliance
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