Culture, Tourism, Europe and External Affairs Committee

Meeting date: Thursday, October 4, 2018

Official Report 647KB pdf

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Transient Visitor Levy

Agenda item 2 is an evidence session on the proposed transient visitor levy. This is the committee’s second evidence session on that issue following that with local authority representatives on 13 September.

Our witnesses today are Fiona Campbell, who is chief executive of the Association of Scotland’s Self-Caterers; Marc Crothall, who is chief executive of the Scottish Tourism Alliance; Peter Irvine MBE, who is an author and the founder of Unique Events; and William Macleod, who is executive director, Scotland of UKHospitality. I welcome them and thank them for coming to give evidence to us.

It has been indicated that no one wants to make an opening statement.

What are the witnesses’ views on the First Minister’s announcement this week on a consultation on the transient visitor levy? What research has been done by those on the panel who are representing the industry on the impact of any transient visitor levy, should it be implemented?

Good morning. On behalf of all of us, I thank the committee for the opportunity to give evidence.

I think that I can speak for the three of us here from the industry side in saying that we very much welcome the First Minister’s announcement. We will wait to see the detail of what emerges from it, but I think that it responded to a request that we made to the Cabinet Secretary for Culture, Tourism and External Affairs that the Scottish Government begin to take control of the debate about the introduction of a tourist tax or transient visitor levy, which has been running for quite some time. We thought that, to a certain extent—my colleagues can speak for themselves about this—there was an assumption from the Convention of Scottish Local Authorities and the local authority side that the principle of a tourist tax or TVL coming into place and the principle that it would be devolved and localised had been established. If that is the case, that has passed me by.

We think that a whole range of issues need to be discussed and debated before we reach the issue of the principle of a tax coming in. I hope that the reasons for UKHospitality’s opposition are clearly set out in the paper that we submitted. I think that we are some way away from that as yet. We need to look at what existing research there is and what new research might need to be commissioned. I do not think that there has been any real assessment of why we need a tourist tax or TVL. We need to establish that first of all and, if there is a need for it, we need to establish what the options are. No real assessment has been made of the impacts on consumers or businesses.

On the convener’s second question, UKHospitality has done quite a bit of research that has looked at existing studies. We have looked at tourist taxes and VAT rates in Europe, which are dealt with in our submission. More recently, we took a punt and started to look at what the economic impact of a TVL or tourist tax might be at the Scotland level, as nobody else had done that. We looked at the accommodation industry turnover in Scotland, average room rates, the percentage increase in accommodation spend that there might be from a new tax, and applying academic research that looks at tourism price sensitivities. Our view is that, if a £2 per room per night tourist tax is applied throughout Scotland, that could result in reduced turnover of £100 million for the accommodation industry and £75 million of reduced spend in other parts of the tourism economy. Therefore, our preliminary figure is reduced spend of £175 million.

I understand that that work is under way.

We have concluded the preliminary work.

When will you publish the full—

We have published that. The media covered it last weekend, and I am sharing that information with anybody who is interested in hearing it.

Will you be doing more?

Not at the moment. We are waiting to see what the Government’s position is and how it intends to proceed with the consultation that the First Minister announced on Tuesday.

I echo what Willie Macleod said. The announcement was made at our national conference on Monday, and we welcomed it, as the ask from our member council was for exactly that.

I stress that the Scottish Tourism Alliance has around 75 per cent of the total industry under its membership umbrella, and our member council includes a broad range of trade bodies, which are not just accommodation providers. The member council convened following the hotting up of the conversation in and around Edinburgh and in response to the COSLA paper in particular. The members of the STA include the Scottish Tourist Guides Association, the Confederation of Passenger Transport, Green Tourism, the Scottish country sports tourism group, the licensed trade, obviously, Sail Scotland, a couple of destinations and the visitor attraction sector. Those bodies were unanimous in the view that what has been proposed should not just be rushed through without significant consideration and research on the impact of the application of a levy. It is clear that that would be felt in the wider economy. There would be less money to be spent in some of the smaller attractions on the high street, and the knock-on effect would be considerable.

To pick up on what has been said, many people are maybe presuming something. We have enjoyed a significant rise in international visitors as a result of the exchange rate, and our tourism numbers in 2017 were very well received by everybody, but there has been a marked decline, and there is evidence that suggests that the domestic market—60 per cent of Scotland’s tourism market is domestic—is slipping away and that that particular audience’s ability to spend is declining. I think that everybody in this room, if they are like me—I am sure that they are—is feeling the squeeze on their household expenditure.

The reported statistics that show the 2017-18 change are very healthy but, if we look back at the visitor spend and the behaviours of the domestic market, which is our core market, we see that there has been a 13.6 per cent decline from 2016. As we enter into the uncharted waters of Brexit in front of us and a lot of uncertainty, the risk of getting to a tipping point when a tax is collected from that particular audience could send many businesses over the cliff. Without analysis and in-depth economic modelling, it would be very foolish to rush into taking the levy forward. As Willie Macleod said, certain authorities are far further down the track in assuming that it could be applied.

In gathering other bits of evidence, we have gathered information on the reality of costs to business, which was reported in The Herald on Sunday two weeks ago. The perception is that all the industry is doing well because numbers are strong. However, the information on all the hotels and large and small groups across different parts of Scotland shows an erosion of margin and profit, so their ability to reinvest not only in their asset to stay competitive but in their people is marginalised. If a further tax is added, albeit that it has been referred to as a visitor tax, there will be a cost to business. That would be yet another cost to be borne that could tip people over the edge.

10:15  

Ms Campbell, do you want to add anything?

Absolutely. The ASSC represents more than 650 businesses running approximately 7,000 properties in Scotland, and our sector alone brings £723 million to the Scottish economy. We absolutely welcome the First Minister’s determination to have an industry-wide consultation, because it is essential that any such policy decision is underpinned by data and that there is an absolutely robust economic impact assessment of a tourist levy both on our sector and on the other sectors that support us.

Thank you very much.

Mr Irvine, you are in quite a unique position—if you will pardon the pun. Not only have you run a very successful business but, as an author, you have an overview of the situation. What is your view?

I certainly welcome the consultation, because there are voices that are not being heard. I do not have any statistics or surveys at my fingertips, but I do have quite a lot of personal experience. As you have said, I am the author of a guidebook to Scotland that is updated every three years. In fact, I have just completed that process, which, of course, takes many months. I probably visit more hotels and accommodation providers than anybody else; I stay in people’s accommodation, I talk to them and I see what is going on, so my views on the matter come from personal experience.

I have been having this debate certainly in my own head and with my colleagues as a member for many years of the board of Festivals Edinburgh. I was also the founder and director of Edinburgh’s hogmanay celebrations and, for 25 years, ran a private business that made them happen. As those years went by, I began to say, “I wish the accommodation sector was putting something into this.” I felt that quite strongly, because I knew that, in the beginning, the hotels were empty and the guest houses closed. We discovered that, for those few days at the end of December, the rack rates for accommodation were higher than any other city in Europe.

Of course, that festival was funded by the City of Edinburgh Council, and we had to use whatever it was putting in to create this amazing magnet for international visitors from more than 80 countries. However, it was yours truly who had to pick up the tab if things did not go well. The only other source of income was ticket sales, and we could lose a fortune if there was a rainy night, a cancellation or whatever. As the years went by, the costs of programming went up and up with having to meet health and safety regulations et cetera, and the council were increasingly loth to put more money in. In fact, it could not do so.

That situation has changed. I stopped doing hogmanay just over a year ago, and the company that runs it now has a different business model. It has many bars in the city centre and, as far as I am aware, it does not pay any rates or whatever. It is a very lucrative business, which means that the City of Edinburgh Council can decrease the amount that it puts in.

Nevertheless, the principle still pertains. I might be wrong, but as I understand it, this particular argument and debate stem from the City of Edinburgh Council’s wish to introduce a levy. We might well talk a bit more about this, but from what I have seen from travelling around the world as well as around Scotland, I would argue that Edinburgh is not just a different case—it is an exceptional, extraordinary case. Those of us who live in the city are aware that, in the past few years, an extraordinary tide of tourism has landed on our shores. There are more tourist buses, more open-top buses, more people in the Royal Mile—in fact, more people everywhere—more Airbnb properties and so on, and a holistic approach needs to be taken to all that. What we are discussing is just part of that, but I also suggest that we include in the debate that we are having more generally, not around this table, other parts of Scotland as well as Edinburgh—for example, the Highlands, particularly Skye—that are famously full.

Thank you very much. That was very interesting.

I move to questions from committee members. As we are quite pushed for time, I say to the four members of what is quite a large panel that they should not feel that they must all answer every question. If you simply agree with what the other panellists have said, please say so.

First of all, I should say that I have already met Fiona Campbell to discuss this issue as well as a number of other issues concerning her sector.

In light of the evidence that we took from COSLA and local authorities a couple of weeks ago, I wonder whether the panel recognises the pressures that were identified by Edinburgh and the case made by Aberdeen City Council and Highland Council. Mr Irvine has already explained how he feels that Edinburgh is under pressure, but do the other panel members recognise those particular issues, including the council’s ability to clean the streets, to address the state of the roads and to deliver the general services that need to be delivered as we see an influx of visitors into a particular area and the strain that it puts on already tight local authority budgets?

It is impossible for those in tourism not to be aware of and recognise that certain parts of the country—the more popular areas—come under pressure from time to time. However, we have to think a little bit more about cause and effect and strip the visitor market down into its different components. If a visitor levy or tourist tax becomes a reality, it will apply to people staying in commercial accommodation; however, those staying visitors contribute most to the destination’s economy. It is a matter of fact that they spend more, and I think that we have to look at other sectors of the market.

I think that I am correct in saying that Edinburgh has 5 million staying visitors a year, which probably equates to 15 or 16 million visitor nights; however, the city also attracts 18.5 million day visitors. You have to look at where the pressures are coming from. Staying visitors enable not only the accommodation businesses that we represent but the other businesses that they spend money in to pay their non-domestic rates and remit VAT to the Exchequer. We have to put this into perspective and think about the amount of money that our visitors already pay in taxes through VAT. Their expenditure enables businesses to pay business rates, and businesses in turn expect a certain amount of infrastructure to be provided in return for their contribution.

I agree whole-heartedly with Willie Macleod. All of this comes back to the changing behaviour of tourists, particularly the domestic market. The number of day trips has increased significantly, and that increase has possibly been driven by people not being able to afford to stay in accommodation any more. As a result, we are seeing a bigger volume of visitors coming into destinations at peak times.

Picking up on Pete Irvine’s comment about Skye, I can say—as the person in the hot seat as chair of the future tourism strategy group looking at the strategy beyond 2020—that STA has been very involved in leading and shaping work on looking at barriers to growth. Arguably, a lot of that is about ensuring that people can move to different parts of the country, that the load is spread and that we invest in infrastructure to allow them to do that. However, success breeds success. Understandably, where there are hugely successful and growing festivals, people will want to come and visit them, but the revenue streams that are now being derived from festivals are growing, too. How do you compensate or penalise individuals who might visit the city at festival time but do not come for the festival itself or who visit the city at a different time of year for a completely different purpose?

Like Pete Irvine, I get around the country a fair bit. I was at a meeting up in Inverness, and I found that a number of people had misperceptions about the impacts, the costs and the contributions that society makes, particularly the UK residents who, as I have said, represent 60 per cent of our market. Someone said, “What’s £3 per person? It’s less than a pint of beer.” For a family of five staying for a week in a small bed and breakfast—or even a Premier Inn—in Inverness, that is an extra £105 on to their bill. First of all, would they be able to afford to do that? More important, those people want to go to Inverness, spend that money in the community and the small businesses that are actually there, take their children to the attractions and so on.

As for the pressure on destinations, it is absolutely the case that the destinations are growing; indeed, tourism globally is growing. I have just come back from a conference in China. The same issues were raised and the same discussions were had—indeed, they are facing the same situation in Australia—but on every one of the panels that I sat on, every single person’s view was that tourism tax was not the way to go. We should be finding alternative solutions and sources to fund a better-quality experience, not taxing visitors even more. The world is a small place, and Scotland is a very small place. We need to be competitive.

The principle that is proposed is that a local authority could set its own rates. Last week, we heard from local authorities that they would seek to do that in a way that would not damage their local businesses. The figures that Marc Crothall has suggested are not on the table from any local authority. I think that the City of Edinburgh Council is suggesting £2 a night per room. It cost me £2.70 to buy a takeaway coffee this morning.

The issues around affordability need to be looked at more closely. I imagine that one thing that is driving tourism from overseas is the weakness of the pound. At the moment, visitors who come to Scotland benefit from a weak currency, which is encouraging visitors. You have said that there is a lack of evidence on the impact. Some of the evidence that we heard last week and some of the written submissions suggest that the difference might be 1.5 per cent around the margins. Have the panel members considered any of the positive impacts on their businesses if a levy was introduced? Is there anything positive in it at all?

As I understand it, with any levy, it can be decided how it is levied and who pays it. From what we see in the documents, it is clear that cities would set their schemes so that children and long-stay visitors would not pay. Charging long-stay visitors would be disastrous in Edinburgh, because the honey pot of August would be seriously affected if all the performers and tech people who come to the city could not be put up in hotels or other accommodation. Any stay over 10 days would have to be exempt, and children would be exempt. There would be other exemptions, such as for self-catering, perhaps. Surely it is possible to work a system whereby all those considerations are taken into account but there is still a revenue, particularly in Edinburgh. I agree that south-west Scotland and other such places where hotels are really cheap at the moment probably could not sustain any increases, but I suggest that Edinburgh should seriously look at it.

There is a whole other story about what happens to the revenues and who gets them. The money should improve not just the visitor experience but what it is like to live with an influx of tourists. It is often remarked to me that we should now think of Skye as we think of Venice and of Edinburgh as we think of Barcelona. They are places with extraordinary history and landscape—a small rural place, in the case of Skye—that we have to protect.

We have heard that the Federation of Small Businesses, Scottish Chambers of Commerce, the Scottish Tourism Alliance and the licensed trade believe that a levy is bad for business. What involvement was there with the Scottish Government prior to the First Minister making her announcement on Monday? The Government had quite a strong stance, but there now seems to be a softening of that stance, given that it is having the consultation. Is that the case?

10:30  

As I said, when the statement was produced by COSLA, we convened as a member council and we made our position known. For the reasons that Willie Macleod outlined, rather than bury our head in the sand and say no, we invited the Government to lead on the process. It is not a local issue; it is a national issue and a global issue. It is a conversation that is being had everywhere.

We have been very appreciative of the stance that the Government has taken until now. I think that that stance is absolutely correct—it is not the time to consider imposing such a levy anywhere, without full consultation and engagement of the industry in the conversation. We have had no direct communication or consultation with, for example, the City of Edinburgh Council. It has never approached the Scottish Tourism Alliance, and the COSLA engagement at the early stages was virtually nothing.

We met the tourism secretary and the finance secretary towards the end of June, after we published our response, and we had another meeting with them in September, at which we again requested and recommended that the Government take the lead on a consultation or conversation, with information that is transparent and clear for all to see and understand. That discussion should consider not just the option of a TVL; it should explore other options. Clearly, as our conference had nearly 400 representatives of the industry present, it was an appropriate moment for the First Minister to make that announcement, which we welcomed.

As I said, her announcement has been perceived as a softening in her stance. Do you believe that that is the case? You have your reports and statistics, and the councils in Edinburgh, Aberdeen and the Highlands came back strongly with their views. Do you think that, by having the consultation, they are going to win the argument?

I would like to think that it is not a softening. On other issues on which we have brought forward evidence to the Government and presented it in an articulate way and on a factual basis, it has been listened to and considered. I very much hope that the Government’s commitment to taking the lead in the process means that it is not a done deal in any way, shape or form and that all the evidence and research will be looked at in a responsible way, with the aim of protecting one of Scotland’s biggest economic drivers. We employ 220,000-odd people and the food and drink sector is affected. There is an enormous supply chain that sits behind us, and there is a risk to those businesses from a decline in visitor numbers. For some, £2 may not be a lot, but we need to consider the effect when it is multiplied and look beyond the current exchange rates. It must not be a hasty decision; the issue must be looked at in full detail.

The impact needs to be measured and examined. We will definitely do that, but it is imperative that we get all sides of the story. Other countries and cities around Europe and in other parts of the world have found the approach to be quite successful.

That is in a very different tax environment.

Yes—the point that it is not a like for like comparison needs to be brought into the process.

Exactly. I would just go back to the—

We have to move on, as a number of members want to ask questions. We will move on to Mr Gibson.

I am struck by some of the evidence that has been presented. For example, the ASSC and UK Hospitality both stated that the World Economic Forum ranked the UK as 135th out of 136 on tourism price competitiveness. Furthermore, we are told that the UK has the second highest VAT rate in Europe, at 20 per cent, and is one of the few EU countries that does not have a reduced rate of VAT for tourism services. It is an iron rule of economics—my degree is in economics—that, when prices go up, sales go down. You also talk about researchers from the University of Nottingham finding that a 1 per cent increase in costs results in a reduction in visitors to the UK, Italy and Spain of 2.2 per cent, 1.75 per cent and 1.8 per cent respectively.

Councillor McVey told the committee that some elements of the tourism sector are in fact in favour of the tax, and he quoted Airbnb. He said:

“Although some industry bodies are keen to play up a consensus, that does not exist. There is not a consensus in the industry. There are industry voices—the split might be one in four, 50:50, or two thirds and one third—that understand the impact that the levy could make in supporting the sector and industry voices that understand the long-term concern that the levy is needed if we are to sustain the level of success.”—[Official Report, Culture, Tourism, Europe and External Affairs Committee, 13 September 2018; c 26.]

Will you comment on that?

I realise that we are short of time, but I have a specific question for Mr Irvine. Is your view of how we tackle the issue of excessive numbers of visitors to Edinburgh and Skye that we should have a pricing policy that would reduce access to Edinburgh and Skye for overnight visitors who are perhaps not so well-heeled as others?

I am sure that you are aware that, nowadays, you cannot phone up a hotel and say, “How much is a room in May?” because the price is different every night. The pricing is all dynamic. Some of the prices for rooms in hotels are exceedingly high, particularly in Edinburgh and Skye but also around the north coast 500, which has been enormously successful, but there is a very small amount of accommodation available. Prices are so high that I expect that Scottish people cannot staycation easily on Skye at all. I know lots of people who do not go to Skye any more because they cannot afford it and they do not want to take a camper van, or they do not have one because that has its own negative impact.

The idea is to charge £2 a head, with lots of exceptions and with the revenue well spent. I do not really buy the idea that, if we put prices up by 1 per cent, income goes down by 2 per cent or whatever. We need only look at how many new hotels are being built in Edinburgh—it seems to be one a month. In the main, those are big international players, with rooms costing £200, £300 or £400 a night. Yesterday, I looked at what hotels cost in October. There was always an argument that tourism was seasonal in Skye, but the season has now extended, whereas in large parts of Scotland, including Glasgow, there is not the same demand and rooms are not really expensive—dynamic pricing is a much more moderated affair.

I say once again that Edinburgh is a real exception and I cannot see that the charge would affect it. Actually, if it put off people, they might go outside Edinburgh to stay, which would have a positive effect on its hinterland and Perthshire, for example. All the indications are that the tap will not go off or be turned down—tourism in Edinburgh will increase.

I have fought with the council over many years, but Edinburgh is building a new concert hall and it is building a new film festival venue for the Centre for the Moving Image. That is still years off, but there should be one and there will be one. The council is building a world-class amphitheatre in Princes Street gardens and investing in Leith theatre, which would transform Leith in many ways and certainly culturally. Those things are paid for by the council and by taxpayers who live here. They would increase Edinburgh’s tourism and cultural offering. We are a cultural city, which is in the main why people come—it is because of the atmosphere and the history.

I cannot speak on behalf of Airbnb, but I do not believe that it has issued any kind of statement supporting a TVL or tourist tax. However, I understand that it can support that technologically—it does so in any number of other destinations, so it is fairly simple for it administratively to flick the switch and allow a TVL to be added to its income and administration. However, that is not the case for the majority of short-term rental or self-catering properties in Scotland. There is a huge piece that needs to be looked at in terms of administration of such a tax.

Can I just add an issue really in relation to Pete Irvine’s comments on hotel rates? It is important to look at the hotel industry over the piece. Yes, I agree entirely about dynamic pricing, but one of the important performance metrics in the hotel industry is the average daily rate achieved and, over the piece, the average daily rate achieved in hotels in Scotland is somewhere in the region of £70, £75 or £78 per day. Yes, we see extremes of pricing: we see high rates at peak times and lower rates at off-peak times. That is simple economics—supply and demand. It is exactly the same if you go to buy a holiday or an airline ticket—supply and demand rules.

However, we have to look at things like the overall tax burden borne by our visitors. To respond a little bit to Mr Stewart’s question, this is not the first Scottish Government that we have made the case to about a tourist tax; the issue goes way back to about 2007 or 2008. When I first came into the job that I am in now, in 2011, the first meeting that I went into with the then City of Edinburgh Council was to discuss a tourist tax. We have consistently made the point that we believe that such a tax is an uncompetitive approach, given our rate of VAT compared with the rate of VAT of our competitors.

The paper from COSLA eloquently makes the case that the cities and countries that have looked at having a tourist tax in place are those with a much reduced rate of VAT compared with ours. People are building hotels in Edinburgh in historic buildings and bringing life back to the city centre, but it is not cheap to build a hotel in a location such as this; investors have to get a return and hotels are not cheap to run. One of the single-highest overheads that we have is non-domestic rates, which run at 5, 6 or 7 per cent of turnover. To suggest that it is only local taxpayers who pay for the infrastructure is wrong. What is happening to the money that is collected from non-domestic ratepayers? Where is it going? Where are those businesses getting the return on their investment? If we had any other successful industry in Scotland, like the very successful tourism industry that we have, would we seriously suggest that in addition to, in this case, air passenger duty and VAT, we should start taxing its customers? I venture to suggest that we would not.

There are three layers to this debate and often they get a little bit blurred. There is the argument on the principle of councils having such a power that they can exercise. Then there is the debate about whether they should exercise it and how they would do that. Thirdly, there is the one about what they would spend the revenue that comes from it on.

Pete Irvine very eloquently made the point around the unique situation that different areas of the country are in. Given the unique state of local economies and the fact that councils are local elected bodies who know far more about what is in the best interests of their area than we do as a national Parliament, should not this power be one that they have the option of using? Then the debate could take place in 32 local contexts and the sector and the community in that area and their elected representatives could decide what is best for them.

Certainly the matter should be discussed in local areas as well as at a national level, but it has to be made absolutely clear that local authorities must ensure that there is an economic impact assessment that is robust, independent and data driven, otherwise it could go horribly wrong. Despite the City of Edinburgh’s suggestion that it is consulting the industry, I do not believe that it has done so at the required level. I invited myself to a meeting that I was not invited to and it was not a consultation; it presented a fait accompli—what it intended to do. There was another meeting to discuss the administration of a tourist tax and, again, basically it had made up its mind.

Unless there is really robust consultation at a national level, we might make horrible decisions at a local level.

That is useful, but what you are saying is not that there is an objection in principle to councils having this as a potential tool at their disposal, but that the process needs to be robust, evidence led and consultative.

Absolutely. If the evidence is that it is a good idea, then we have no objection to it, but I think that, in the current tax environment, it really has to be looked at very closely.

I think that we have to be careful that we do not end up with 32 different solutions to a problem, as that would be an administrative nightmare for businesses that operate in different parts of Scotland. Fiona Campbell has already alluded to the cost that would be borne by businesses in setting up systems, training staff, remitting an additional tax to a different source and then, of course, auditing the cost of it all. Introducing something like this will not come without a direct cash cost on businesses as well as, potentially, an economic cost to the country.

10:45  

It comes back to the £3 figure that was quoted by a councillor in Inverness. The understanding of the reality and the basic ground rules—the facts and the information that is out there—is not there at local level. The survey that was conducted over the summer suggests that visitors have been surveyed, but those people were in Edinburgh, coming to the festival, so of course they are probably going to say yes, they would come here and that they had a great experience. How do we look at the wider picture though? This is a national issue; it is not just Edinburgh that wants to consider this. Once it starts in one authority, other authorities will be looking to do or explore similar things, hence why our members’ council has recommended that it becomes a national conversation in the first instance, led by Government, so that there is a level playing field and it is inclusive. That is not to say that the local authorities should be pushed to one side, but everybody needs to be around the table together, reading, interpreting and understanding the same information to inform the outcomes.

Earlier, Willie Macleod, I think, made the point that tourists contribute to local government funding by contributing to businesses that in turn pay non-domestic rates. It might go through a couple of steps, but does that indirect contribution make it back to the council, and does it cover the cost of local services? None of us disagrees on the massive benefit that tourism has for local economies; what we are talking about is the impact on local services and service providers. Does that indirect contribution from tourists cover the cost of the increased need for refuse collection in the centre in Edinburgh in August, for example?

Customers contribute to the viability of the business. The business pays rates for a certain amount of service. The business also pays to have its refuse taken away, so the direct contribution from the customer enables the business to pay an independent contractor to come and take away business refuse.

We are talking about the whole tourist experience. It is true that a tourist will use something and produce waste, or litter, for the business, but when they are out on the street in Edinburgh, they will use a public bin like everyone else, so there is increased demand on that service. The City of Edinburgh Council has already talked about the considerable increased cost to them, literally, of refuse collection during the festival period.

But that comes back to stripping away the layers of the different elements of the tourism market. You have staying visitors, you have day visitors, you have people staying with friends and relatives. Yes, indeed, everybody makes a demand on local services, but introducing a TVL or a tourist tax is putting a discriminatory tax on anyone who uses commercial accommodation. Where is the rest of the contribution coming from, from those who are not enabling businesses to meet their contribution to the cost of local services? We have to look at cause and effect here.

Absolutely. I have one specific follow-up point to make. Airbnb has already been mentioned, and there is that quite substantial, unregulated part of the market. In fact, you have made robust arguments about it in the past. Is the model of a tourism tax or a transient visitor levy not an opportunity to ensure that those who use Airbnb and their hosts make a financial contribution that at the moment they are not making because they are in that unregulated part of the market?

We have not looked at the options and we are jumping ahead, assuming that there is a problem that needs to be addressed. To my mind, that is yet to be proven. However, if the principle is that, yes, there is an issue that we have to resolve and we need to raise more money, or redirect existing money, to do so, we need to examine the options—there has been no examination of the options.

I could come up with several different options. We could look at hypothecation of business rates or the fact that, from the beginning of the next financial year, the Scottish Government will get 50 per cent of the VAT raised in Scotland. According to the figures that I have in front of me, the accommodation sector alone—not the entire tourism sector—contributes £465 million a year in VAT. Surely some of that money can find its way back into supporting local services.

We have to take a fresh look at how we do this. Over on one side, there is a conversation about potentially reducing or abolishing air passenger duty. Are we really talking about potentially abolishing one tourist tax, which raises in excess of £200 million for the Scottish Government, and replacing it with another tax, which would need a whole new administrative infrastructure in order for it to be introduced and collected? That is why we want a national conversation, some research and an examination of the options. We might not win at the end of the day but—this is in response, again, to Mr Stewart—I do not think that we have seen a softening of the Government stance. Maybe I am naive—I am maybe too old to be naive, I do not know—but I believe what I am told. I think that we have the opportunity here to have an open debate about an issue that is becoming increasingly intractable, instead of conducting it through the pages of the Edinburgh Evening News.

I will pick up a couple of the points discussed thus far. I was struck by the example that Marc Crothall gave about the family in Inverness and what it would all cost; and I was struck by what Peter Irvine said, which was, “Actually, hang on a second, because in many cities and countries that have a tourist tax, there are exemptions for children with different age thresholds.” I have just had a look online and in Spain it seems to be 16, in France it seems to be 18 and in Austria it seems to be 15—to name just three. Picking up on what Willie Macleod said, I think that it is important that we get down to a factual debate here and talk about this as it is, because if this were to come to pass, presumably—like those other countries have done—we would have the option to configure a tourist tax in a way that is deemed appropriate by all concerned.

I want to get back to the fundamentals. As I said in the last evidence session that we had on this subject, about three weeks ago, a lot of assumptions are being made about consumer behaviour here. That is why I would like to see more detailed, up-to-date analysis of the experience of some of the cities and countries that have introduced a tax. Presumably the introduction of such a tax in some of these places was controversial at the time. They have had a lead-in time to examine the impact, if any, on the numbers—which, I understand, is your concern and should be the concern of everyone who wants to see a thriving tourism sector in Scotland. For example, in his letter to the committee of October 2018, Adam McVey at the City of Edinburgh Council says that if you compare the VAT rate in Edinburgh—and fair enough, sadly, we are subject to one of the highest rates of VAT in the whole of the EU, thanks to the UK Government—with a combination of the reduced VAT rate and the TVL in some of those cities, Edinburgh remains competitive.

It is really important that we have a factual analysis to show what is actually happening in other places that have such a tax. It is the norm for individual tourists from Scotland who go elsewhere in Europe or further afield and, in particular, for other Europeans who come to Scotland or travel elsewhere in Europe. Times have moved on. It is what many countries have done.

It is really important to have a debate rooted in the facts—in 2018—and that takes into account the international experience.

I would welcome just a few initial thoughts on that and on what the plans are. I asked the same of City of Edinburgh Council: what are the plans for ensuring that that research is there and can inform the debate?

We have to be very wary, because the indicators that are coming through from the industry at the moment around consumer behaviour show that 60 per cent of our core market are changing their spending patterns considerably because they are having to manage cost. They are moving much more into camping and the camper van market; they are bringing their own food and drink into hotels; and they are cutting their holiday time short. There is already a squeeze and it is only going to get tighter. We all watch the news and we all feel it—everybody’s budgets are being stretched that bit further. Yes, we are used to paying levies when we go further afield, but the tax regime is very different as well, so we must not compare apples and pears—we have to be quite careful about that.

We need a longer-term view. Where is the tipping point for a family in choosing to go away and to stay and spend? We have that spike in day-visit experiences, which brings us back to the pressures on some destinations that have an increased volume of people coming in who would maybe not normally be there, because they are not holidaying elsewhere or spending a longer time. A number of factors have to be explored and seriously considered; we cannot jump straight in.

The results from the interviews of 600 people in the summer are not a true reflection; there are wider considerations that we need to take into account before we reach a decision of this magnitude. Scotland cannot afford to be seen as being uncompetitive. Equally, the use of the word “tax” and the way in which this plays out in the media, when we want to keep the door open and welcome people, are not doing us any favours.

I am not quite sure what arithmetic Mr McVey uses in his letter to suggest that the combination of tourist tax and VAT in other countries would exceed our current VAT rate of 20 per cent. I think that you have to be very careful in applying that arithmetic. Last night, I did a very quick perusal of the analysis of tourist taxes and comparative VAT rates—COSLA probably has a more up-to-date version in the paper that members have. Looking at the figures, I could not readily see how a combination of tourist tax, or TVL, and the much reduced rate of VAT in the comparator countries could begin to exceed our 20 per cent rate of VAT. Certainly, if I take the United States as an example, where in fact hotels are not obliged, like we are, to show their rates inclusive of VAT and all other charges—when you go to the States, a whole range of taxes is added on to the hotel rate—the highest rate of combined tax that I have seen, which was in a report done by HVS Global Hospitality Services into taxation in the lodging industry, came in at 18.75 per cent, which is still a smidgeon below our 20 per cent VAT.

We have to be very careful when we are making these comparisons. The blunt comparison is that we are not competitive in VAT terms; most other countries that have a tourist tax have a reduced rate of VAT. We need to take a much more holistic view of how we are taxing our visitors and our tourism businesses. I do not have all the figures—it is very difficult to get them—but in many European countries the property tax, or the equivalent of our non-domestic rates, on hospitality businesses is much lower than the non-domestic rates that our sector pays here.

I hear what you say and I hope that this industry consultation indeed gives the opportunity for these issues to be fleshed out and to get hard facts, because that will allow all of us to have the best debate possible on this very important issue. I hope that your organisations reflect on that, because they can make a really helpful contribution to the debate to ensure that we can take decisions based on the best evidence available.

That was not a question, so I shall move swiftly on to Stuart McMillan.

For the record, I also met Fiona Campbell during the summer, as I chair the cross-party group on recreational boating and marine tourism, so I meet Marc Crothall and Willie Macleod regularly as well.

On the issue of taxation, has anyone on the panel undertaken any activity regarding the wider basket of taxation, including corporation tax, to actually help inform this debate?

As I alluded to earlier and in our submission, we took a top-line look at the contribution, through various taxes, of the accommodation industry in Scotland and I think, if I remember correctly, that it showed as £719 million. I appreciate that some of that finds its way to Westminster, but one can only assume that some of it also finds its way back here in the block grant. That was the figure for the tax take, taken from published sources. It excludes things like contributions by tourism businesses to business improvement districts and it probably excludes a very significant indirect contribution from our customers through the excise duty on the road fuel that they use when they are here and on the alcoholic drinks that they buy from our businesses. That tax is collected indirectly.

11:00  

The STA has campaigned for quite some time on the issue of VAT, in particular the high level of VAT. Clearly that is set at a UK level. Has STA had any indication from the UK Government that the VAT level will be reduced or amended?

The cut tourism VAT campaign is being led by UK Hospitality, and the STA is an absolute supporter of that. We are aware that conversations have been on-going across the devolved states with the respective cabinet secretaries. At the moment, there is the issue in Northern Ireland, where there is a challenge around tourism VAT that is being considered. Depending on the outcome of that challenge, that could open up a challenge for VAT to be reduced in Scotland as well. However, there has been a varied mixture of support within Westminster. I think at one point we had about 135 MPs in favour of a lowering of VAT, but with all the changes that are happening and continue to happen, that argument probably is not as robust as it could be.

As we have said before, the VAT reduction for our sector is arguably the game-changer for us. In the Republic of Ireland, the Government took the decision to reduce VAT from 13 per cent to 9 per cent and removed air passenger duty, and the growth in the receipts through tourism growth and employment has been significant. I think that that is a good case study to follow. The conversation around a lowering of VAT then becomes a very different conversation around a tourism levy, and one would say that that is where we would like to get to. We would rather have more people focusing on getting a VAT reduction and considering that as the primary opportunity rather than looking at the option of a tourist tax on top of what is already the second-highest level of VAT in Europe.

There is a very sound economic argument, using the Treasury’s own model, which supports the economic case for reducing tourism VAT. I would happily share a fact sheet with the committee on that.

That would be very helpful.

Just one final question, because I am conscious of time. If, at the end of this national conversation, a decision was taken to implement any type of TVL, would you want it to be implemented on a national basis or on a local or regional perspective across the 32 local authorities?

Based on the comment that I made earlier about not wanting to have 32 different systems in place, our preference would be for it to be national. If such a tax were present—I appreciate that it is a hypothetical question, so I will give you a hypothetical answer—we would prefer to see it at national level with clear rules about how it would be administered so that it was common throughout the country.

I think that, if it was around the country, that would certainly very much diminish the Edinburgh view. Personally, I do not think that the proposal would be at all welcome around most of the country. Again, I reiterate that Edinburgh is a very particular and exceptional situation.

Tourism is increasingly experiential—people come to Edinburgh because of the experience. However, we must also take into account the experience of the people who live here. There is a balance that has to be struck. The discussion may be conducted within the pages of the Evening News at the moment, but it should obviously be a much wider discussion. It is difficult for people who live here to know what it is really like being a tourist here or what it is going to be like in the future. However, the future looks pretty good, particularly for Edinburgh. Edinburgh is the gateway to Scotland and, through increasing flights and increasing the amount of cultural experiences, which I talked about a moment ago, more and more people will come here. Hotels will be fuller, the season will be longer. That should really be considered. It is very much part of the VAT picture.

I always think of Edinburgh as being a bit like Dublin. It is always expensive to stay in a hotel in Dublin—perhaps it does not have enough hotels—but people go to Dublin for the experience, too. I cannot remember what the VAT regime there is. Edinburgh has to consider itself in an international context, alongside places such as Barcelona, Venice, Rome and other places where there are increasing numbers of tourists coming into the city centres and, particularly, the old town parts of those city centres.

If there is a fair way that is worked out so that the money that is gathered from tourism can be apportioned to benefit the experience of tourists and locals—I am talking specifically about this city, because I do not know about Aberdeen, to be honest, or even Glasgow—I think that there should be a proper consultation on that with everyone.

I can assure Mr Irvine that the issue has been mentioned in The Shetland Times as well, and it is not in favour of it. I take Willie Macleod’s point, but I actually think that, if the tax were administered at a local level, quite a lot of areas in Scotland just would not impose it.

Mr Irvine made an earlier remark about what the money would be spent on, and I think that that is quite important. I have a question for the three panellists who are not persuaded of the merits of a tourist tax. Is it your concern that the money that was raised by that would just disappear into the general local government pot and be spent on schools and so on and it would not be spent on services that are directly attributable to the tourism product, whether in Edinburgh or anywhere else?

You have to remember there is a Scottish budget announcement coming up on 12 December—

I am acutely aware of that, yes.

You are not naive, Mr Macleod.

If such a levy were imposed in Edinburgh, for example, would it not be better to have criteria set that said that the money that it raised needed to be spent on the tourism product in Edinburgh?

I think that, if there was such a tax, then, yes, it should be ring fenced for tourism with considerable input from the industry about how that was spent.

If I may, just responding to Pete Irvine, the VAT rate on a hotel room in Dublin is 9 per cent and in Dublin there is no tourist tax.

Yet the rooms are still incredibly expensive, because of the demand.

Yes, because running hotels is quite expensive.

Absolutely categorically there would need to be some very strong guidelines that that money is protected and can be used only for tourism promotion and making sure that the quality of the tourism experience is enhanced. Earlier, Willie Macleod referred to the contributions that the industry already makes in other ways to BIDs as well. You cannot underestimate the amount of money that businesses actually invest in marketing Scotland, whether it be their own destination or their own premises. They contribute considerably to some of the local marketing activity at destination level as well. Clearly, every business would want to make themselves the best that they can be, so when you read a headline such as the one that I saw a few weeks ago when the teachers’ union met in Dundee, which said something like, “Great—Edinburgh tourist tax will pick up the shortfall of the teaching budget in Edinburgh”. That sets off alarm bells in the industry, as you would imagine.

I would just like to finish up. Earlier, we talked about how the impact on infrastructure was not just caused by overnight visitors but by day visitors as well. At a previous meeting, we talked about ocean liner passengers coming into ports such as Inverclyde, which Mr McMillan represents, and we had quite a long discussion about the camper van issue in the Highlands and the amount of pressure that puts on the roads, toilets and so on. Are you aware of any international examples of tourist taxes that successfully capture all visitors—that is, day visitors and overnight visitors?

I am not personally aware of any, unless it was some form of property-based tax that applied to every business that in some way benefited from the visitor economy, which would probably spread the load much more equitably.

I am not aware of any such examples, but I would just like to draw your attention to an issue that is really important with regard to future research. At the conference on Monday, there was a presentation by Euromonitor on the future trends and travel trends of tourism. It is experiential now and increasingly more so, as Pete Irvine alluded to, hence the Airbnb culture that has been adopted. The camper van market is one that people would like to increase, so I think that we must not look to penalise what is a changing behaviour of travellers. Cities will become the destinations of the future. There is a lot of really good intelligence out there, and we have to be looking further ahead in this conversation rather than just having a knee-jerk reaction and implementing what is considered to be a short-term solution. As we are very unclear about what might happen in the next wee while, we should not be putting any barriers in the way of a very successful industry that contributes a huge amount of value to the economy and in other ways.

The Airbnb market is a serious concern in this city. I am not entirely sure about this, but I do not think that most Airbnb revenues have any VAT added to them, so they are not paying any VAT already. If Airbnb were minded—it could certainly more easily administer this than some organisations—it could take action in that regard, and that would make a substantial contribution. Airbnb is something that seriously affects people who live here.

I thank all our witnesses for giving evidence today. We will go into private session.

11:12 Meeting continued in private until 11:24.