SNP’s panicked attempt to fix so-called 'tourist tax' shows how badly they govern Scotland
The legislation that created the visitor levy – a tax on more than just tourists – is having to be changed after farcical problems emerged with forward bookings for Edinburgh next summer
Last week we had a very welcome announcement from the Scottish Government of a U-turn in their approach to the visitor levy. This is the new tax that will be applied to those staying in overnight accommodation, which councils have the option of implementing from next summer. Already we know that Edinburgh City Council intends to introduce a levy of 5 per cent plus VAT from July 24.
This is not, as some characterise it, a “tourist tax”. It will be applied to everyone staying in overnight accommodation whether hotels, hostels, B&Bs, campsites, and self-catering properties. It will be charged for the first five nights of every stay, and apply to those who require accommodation because they are working away from home or staying near a hospital where a sick relative has been admitted.
The visitor levy has always been controversial, and vigorously opposed by tourist businesses. With VAT on hospitality set at 20 per cent across the UK, we have the second highest rate in Europe. Scotland is already seen as a high-cost destination for both domestic and international visitors, and this will simply add to the cost pressures.
Final straw for struggling hospitality firms?
The whole hospitality sector is struggling with a rising cost base at a time of flat customer demand. Increases in the minimum wage, employers’ national insurance, energy costs, and a new rates revaluation which is seeing in some extreme examples of bills quadrupling, all mean the hospitality sector is under unprecedented pressure. A visitor levy may well be the final straw that sees once thriving enterprises having to close their doors.
One particular gripe for the industry is that the funds raised by any visitor levy will not necessarily be directed into spending which will directly help enhance the visitor experience, as was the original intention. Last week Edinburgh City Council announced that it intends to use funds raised to provide almost 500 new affordable homes in the capital, some of which may well end up being occupied by those working in the hospitality sector. It is, however, at best a tangential benefit to the visitor experience.
READ MORE: Edinburgh Book Festival asks publishers to pay for accommodation costs due to tourist tax
Ever since the levy was proposed, the industry was pushing for councils to have the option to bring in a fixed nightly charge, or a flat-fee banded charge as an alternative to the current percentage-based system. This would bring Scotland into line with other European countries, where tourists are familiar with paying a few euros extra on their nightly bill as a local tax.
This case has been taken forward by the Scottish Conservatives at Holyrood, arguing that councils should have this extra flexibility, which would provide, as the industry has argued, a simplified, transparent and equitable alternative to the percentage levy, ensuring predictable and fair charges for visitors.
Fairer and more transparent
Having initially resisted this change, the SNP’s public finance minister, Ivan McKee, has now signalled a U-turn. New legislation will be introduced at Holyrood in January on an accelerated timetable, to be completed by March, meaning that the option of a flat fee, or a banded flat fee, can be introduced.
There are many advantages for this alternative model. Pricing will be fairer and more transparent, the administration, particularly for smaller businesses, will be simplified, and there will be a more stable, predictable and transparent revenue stream for local councils.
In addition, the legislation will fix another failure in the current law which emerged as people tried to make forward bookings for Edinburgh next summer – the difficulty that online platforms such as Booking.com have had in trying to implement the charge.
We have had farcical situations where these platforms and online travel agents have been unable to cope with a system whereby a percentage is only applied to the first five nights of a stay, meaning that impacted businesses were having to offer to process manual refunds to their customers staying more than five nights. When the original legislation was proceeding through parliament, this issue was not properly identified, meaning it now has to be rectified as a matter of urgency.
Strong public opposition
Councils across Scotland are currently considering their position on the visitor levy, with at least seven having voted to postpone their work pending the outcome of these further legislative changes. Meanwhile, public opposition appears to be growing.
Where I live in Perth and Kinross, an area where tourism is a very significant local employer, the council’s own consultation shows massive opposition locally to the notion of introducing the visitor levy, with just 29 per cent of respondents in favour and a staggering 68 per cent against.
With this overwhelming opposition, it’s difficult to see how the SNP administration could possibly justify proceeding with this additional tax burden, which can only damage an already struggling industry.
Emergency bill to correct another error
Whilst the urgent changes being brought through by the SNP are welcome, they do highlight a broader concern about the quality of the laws being passed at Holyrood. The visitor levy is not the only example of this.
Two weeks ago, parliamentary time had to be devoted to passing another emergency bill to correct an error from a 2020 law which would allow councils to collect non-domestic rates on empty properties. After a court challenge, it transpired this law had been poorly drafted, leaving the Scottish Government potentially having to pay businesses some £400 million in refunds of unlawfully collected taxes.
This bill with its retrospective impact may well face a legal challenge itself for breaching human rights, but it is worrying for anyone interested in the quality of our legislation that we have, within the period of just a few weeks, two examples of laws having been passed without proper scrutiny or detailed consideration of the consequences.
The SNP’s U-turn on the visitor levy is welcome, but there are lessons to learn here for the future to avoid similar mistakes being made.
Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife
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