Transient visitor levy: consultation

Views sought on the principles of a local discretionary transient visitor levy or tourist tax.

2. The Policy Context

There are three key elements of policy context that drive the Government’s thinking around the development of a visitor levy.  These are:

  • Support the sustainable growth of the tourism sector across Scotland, particularly in cities and regions which have experienced high visitor numbers in recent years. 
  • Strengthen local democracy through increased local decision making and more empowered communities. 
  • Create a new local tax power which is consistent with the Government’s overall approach to taxation.

2.1. The Importance of Tourism to Scotland

Tourism is a significant part of Scotland’s economy.  The sector supported over 200,000 jobs in 2017 – around 8% of total employment in Scotland, or an average of 1 in 12 jobs, although this will be far higher in different areas. 

Taken together, spending by overnight and day visitors in Scotland generated around £12 billion of economic activity in the wider Scottish economy and contributed around £7 billion to Scottish GDP (in basic prices). This represents about 5 per cent of total Scottish GDP.

In 2018[6], there were over 15.3 million overnight visitors to Scotland, an increase of 3 per cent on the previous year.  This included over 3.5 million overnight visitors from overseas, an increase of over 10 per cent on 2017.

Overnight visitors spent over £4.97 billion in 2018, representing a 6 per cent reduction (in nominal terms) on 2017.  This included expenditure of over £2.2 billion by overseas visitors, a 3 per cent reduction in nominal terms on 2017. There were also almost 138 million trips by day visitors in 2018, spending almost £5.5 billion.

The total expenditure by domestic and non-domestic visitors in Scotland, including overnight and day visitors, was over £10 billion in 2018. Analysis using the Scottish Government’s Input-Output tables[7] indicates this directly supported £4.5 billion of Gross Domestic Product (in basic prices) in the Scottish Economy, including around £3.2 billion in the hotels, distribution and catering sector.

However, this also supported activity in the wider Scottish Economy through the purchases made by the sector from the wider Scottish supply chain and through the wages spent by those working in the sector and its supply chain. Purchases from the supply chain accounted for around £1.2 billion of GDP in the wider Scottish Economy, including around £400 million of GDP in Finance and Business Services. Wages spent by those working in the sector and the supply chain also supported around a further £1.3 billion of GDP.

During the National Discussion the tourism industry also raised concerns around the impact of additional taxation on their competitive position, in light of increases in costs such as the National Living Wage; increasing input costs, such as food, drink and energy; and existing taxes such as Non-Domestic Rates and VAT. Tourism industry contributions emphasised the scale of the sector’s existing tax contributions, and also contributions made in different areas of Scotland to voluntary initiatives, and to funding vehicles such as Destination Management Organisations (DMOs).

Overall overnight visitor numbers in 2018 were similar to those seen in 2011.  However, there has been a substantial change in composition of visitors to Scotland, with international visitor numbers, increasing by around 50 per cent between 2011 and 2018[8] and now making up 23% of the total overnight stays.

Overnight and day visitor numbers are also concentrated in specific areas of Scotland.  In 2017, there were around 4.8 million overnight visitors to Edinburgh and the Lothians – almost one third of Scotland’s total, and an increase of 17 per cent on 2011, driven by increased numbers of overseas visitors[9].  The Highlands received almost 2.8 million overnight visitors, up over 20 per cent on 2011[10].  Edinburgh and Glasgow also received around 20 million day visitors respectively in 2017, while the Highlands received around 14 million day visitors[11].

This continuing success and the associated contribution to Scotland’s international profile and the support it provides to communities in Scotland is welcome.  However, in some areas, rapid increases in visitor number have brought concerns about pressures, and resources available for infrastructure to meet visitor expectations.

2.2. Growing the Tourism Sector in Scotland

Tourism is a key part of Scotland’s economy, and the Scottish Government is committed to supporting its success within the context of its wider economic approach and the values set out in Scotland’s National Performance Framework[12].

Scotland's Economic Strategy[13], published in 2015, sets out the Scottish Government’s framework for increasing growth and tackling inequality.  Four priority areas are identified within the Strategy to direct policy action: Investment, Innovation, Internationalisation and the overarching theme of Inclusive Growth.

More recently, the Economic Action Plan[14], published in October 2018, reinforces the vision in the Economic Strategy and sets out the steps that the Scottish Government is taking to lead to a more prosperous and fairer society.

Tourism is a significant contributor to this these policies, including being identified, within Scotland’s Economic Strategy, as a growth sector where Scotland has a potential competitive advantage.  It is important in raising Scotland’s profile as an open, modern and internationally-facing economy, and has an important role to play in supporting inclusive growth, given its size and reach as an employer across Scotland.

The Scottish Government therefore has an ambitious approach to growing tourism in Scotland. As well as a package of support announced in the 2019-20 Scottish Programme for Government[15], an updated tourism strategy is currently being developed collaboratively between the Scottish Government, its agencies and partners in the tourism sector.  This strategy builds on the collaboration with Scotland’s tourism sector and our agency partners that informed Tourism Scotland 2020 (TS2020)[16].  T2020 was led by the tourism industry, and aimed to make Scotland a "first-choice destination for a high quality, value for money and memorable customer experience delivered by skilled and passionate people".

2.3. Increased Local Decision Making and More Empowered Communities

The Scottish Government is committed to improving outcomes for people and communities by ensuring that they have more control over the decisions that are most important to them. 

We have made great strides since the Christie Commission published its findings in 2011[17]. The Community Empowerment (Scotland) Act 2015[18] is helping communities to expand community ownership; the Community Choices Fund has seen participatory budgeting firmly established in Scotland; and the Islands (Scotland) Act 2018[19] reflects the unique needs of our island communities.

As a Government we are committed to going further.  We think it is important to review how powers, responsibilities and resources are shared across national and local spheres of government and with communities.  This recognises that outcomes for citizens and communities are best when decisions are taken at the right level of place.  The impacts from tourism are an excellent example of an inherently local issue.  It is therefore right that there should be the opportunity for a local response through the democratic implementation of a visitor levy.

The Local Governance Review is key to delivering local and national governments’ shared commitment to subsidiarity and local democracy.  It builds upon a joint agreement between COSLA and the Scottish Government to focus on and strengthen local and community decision-making and democratic governance in ways that improve outcomes in local communities, grow Scotland's economy for everyone's benefit, support communities to focus on their priorities, and help new ideas to flourish.  As part of this process we sought the views of communities across the length and breadth of Scotland and also, from public sector institutions on the future of local decision making with the findings from this exercise published.[20]

COSLA’s response[21] to the Local Governance Review set out the three empowerments that they felt needed to be delivered to strengthen local and community decision-making and democratic governance.  These were community, functional and fiscal empowerment.  This response builds on COSLA’s position statement on a Transient Visitor Tax, published in June 2018[22], which represented a very specific proposal for such fiscal empowerment.

2.4. Scottish Approach to Taxation

The Scottish Government has adopted an overarching approach to taxation which, whilst designed to be fit for the 21st century, is underpinned by four key principles developed by Adam Smith:

  • Certainty: Certainty is important for households and businesses alike to ensure that financial decisions can be taken from an informed position on the path of future tax policy.
  • Convenience: Decisions made on taxation should not needlessly impact on the convenience of the current system, and should seek to minimise the administrative impact and burden on taxpayers.
  • Efficiency: As the administration, collection and enforcement of existing and new taxes involves costs for those involved, it is important that policy is designed efficiently to minimise the cost of implementation and operation.
  • Proportionality: Proportionality to the ability to pay (often referred to as progressivity) in taxation is vital. Everyone benefits from public services and all those who can contribute are expected to do so, but those with the broadest shoulders should bear the greatest burden.

As well as Adam Smith’s founding principles, the Scottish Government’s approach to tax is based on a firm approach to tax avoidance; and a commitment to engagement with stakeholders.

These principles informed our approach to those taxes which are fully devolved to the Scottish Government (presently Land and Buildings Transaction Tax and Scottish Landfill Tax) as well as our policies in relation to the Scottish Income Tax rates and bands for which collection and management remains the responsibility of HM Revenue and Customs. 

Chapter 1 of this document described how a levy on visitors would, in terms of the of the Scotland Act 1998[23], be a local tax.  This means that decisions about applying a visitor levy, as well as certain decisions about its design, administration and collection which are explored in subsequent chapters of this consultation, would be the responsibility of individual local authorities. 

However, the Scottish Government is clear that the Scottish approach to taxation - including adherence to Adam Smith’s principles, the approach to avoidance and the commitment to engage with stakeholders - should apply to any elements of a visitor levy that are set at the national level and also, to how local authorities use the powers given to them at a local level. 



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