by Conor Holohan, media campaign manager
Last week the Welsh government provided an update on their proposals for a tourism tax. The gist was that the consultation has concluded, and the law will be introduced this Senedd term.
The proposed measures would hand councils the power to introduce a ‘visitor levy’. The Welsh government says it would amount to a small charge paid by people staying overnight in commercial-let accommodation, which would then be re-invested in tourism facilities and infrastructure.
The finance minister published the public consultation of Welsh tourism businesses which closed in late 2022. The findings would doubtless have been grim reading for proponents of the measures.
Over a thousand businesses were consulted, and of the roughly two thirds who reported their staff size, more than 80 per cent of them employed fewer than ten people. So, for the most part, we’re hearing from microbusinesses.
Perhaps unsurprisingly, they have concerns about a levy which would impose complicated red tape and damage small businesses in particular. In fact, 78 per cent of respondents came out in opposition to the Welsh government’s plans to allow local authorities to have discretionary visitor levy powers.
To get a feel for what’s on the line here, we can look at some Welsh government statistics for employment in tourism in Wales. The tourism industry accounts for around 11 per cent of all employment in Wales. In north and mid-Wales it was around 13 per cent in 2020. In Pembrokeshire and Anglesey, more than one in five jobs were in tourism businesses.
More than one in ten enterprises in Wales were tourism enterprises, with three in five having fewer than five employees. In 2019, Wales saw £6 billion of associated expenditure from tourism trips. Over £2 billion of that was from overnight stays by residents of Great Britain, and just over half a billion was from international visitors.
The tourism industry is far too valuable to Wales to risk it. To undermine the competitiveness of Welsh tourism would not only be a risk to a sector that employs at least a tenth of the workforce at present, but in the future as well, as prospective accommodation providers decide that the red tape is too much, and as lost revenue to hospitality businesses leads to fewer job opportunities in those communities.
The Welsh government also published the consumer consultation on the measures. Despite respondents being broadly positive towards the concept of a tourism tax, 74 per cent of people who were very likely to go to Wales on holiday said they felt it might discourage people from visiting.
When asked about how it would impact their own behaviour, among those very likely to go to Wales on holiday, 21 per cent said they would still take the holiday but would cut back on spending. Meanwhile, 12 per cent said they would choose to go somewhere else, 5 per cent said they would take a day trip instead, and 4 per cent said they would not take the trip at all. So together, 21 per cent would decide not to take an overnight trip to Wales as a direct result of the tax.
Already you can see how a visitors tax would mean less money for local tourism businesses, which would translate to fewer job opportunities in one of Wales’ most important sectors.
In terms of those who would still take the trip but would cut back on spending if the tax was introduced (over 1 in 5 of those who were very likely to take a holiday in Wales), the kinds of measures to cut back included doing more ‘free things’ (47 per cent), and spending less on eating out (38 per cent). Again, you can see how restaurants in tourist hotspots will see a drop in tourism revenue, and also how the tax has the unintended consequence of driving tourists into using more ‘free things’, which places a greater burden on local authorities to maintain upkeep. Since part of the stated reason for the tourism tax is to maintain tourism-related infrastructure, it’s actually working against its own stated goal.
One particular problem with the proposed levy is the question of how it would be calculated. There’s a few options here, but each has their drawbacks.
If it was levied on a per-person, per-night basis (the usual framework in Europe), the tax would be regressive, and disproportionately damage poorer travellers and cheaper accommodation providers.
If it was calculated on a per-person, per-room basis, single travellers would be hit harder, and people would be incentivised to cram into fewer rooms, damaging booking volumes for providers.
If you calculate the tax based on a percentage of the spend on the accommodation (another model used elsewhere, and the model that was pitched for the consumer consultation), then you disincentivise investment into accommodation improvements. You could levy it differently based on accommodation type, but that would again punish providers for diversifying their offers by creating a complication barrier, as businesses would have to collect different rates for different types of accommodation.
Whichever method of calculation you choose, you’re chiefly going to be hurting the smallest and cheapest accommodation providers, who will have to grapple with red tape and get to grips with a new, complicated tax which could even vary at different times of year.
One point often trotted out by proponents of the Wales tourism tax is that it’s done elsewhere, and that those places continue to see thriving visitor economies. That doesn’t make a good argument for giving up a competitive edge.
But it’s also not the full picture. As the Wales Tourism Alliance have pointed out, most countries which levy a tourism tax have lower rates of VAT for tourism and hospitality compared to other economic activity. Since there’s no such lower rate in Wales or the UK, a tourism tax would represent a double-tax when compared with other countries which implement one.
It would also put Wales at a disadvantage compared to its closest neighbours. The UK context for a tourism tax comes from Manchester, which recently introduced a pound-a-night levy. The jury is still out on the impact, since the change only came into force last week. There are an additional 6,000 hotel beds being added to Manchester in the next year, and the levy is dependent on the location and rateable value of the accommodation.
But other than Manchesters’ fledgling scheme, there is no other UK example.
It was considered in Cornwall among other places, but wasn't taken up. In Scotland it has been proposed but isn’t yet on the statute book. Remember, 85 per cent of staying visitors in Wales are from Britain and are faced with a plethora of other GB destinations that don’t charge a tourism tax at all. Again, a competitive edge for Wales that would be lost.
It’s also the case that over a third of EU countries don’t levy occupancy taxes at all, such as pretty much all Nordic and Baltic countries and some in Western and south-eastern Europe.
There is still time for the Welsh government to row back on this high-risk levy. Towns and cities in Wales and across the UK deserve top-rate local services, but slapping another tax on already-overburdened tourists (and sending them packing) threatens to do more harm than good.