A strategy for rural tourism

Tourism plays a vital role in the UK’s rural economy. Following a challenging few years, the CLA’s Avril Roberts discusses how the sector needs reinvigoration to help it weather current challenges
Tenby tourism

Rural tourism accounts for 70-80% of all domestic UK tourism and adds £14.56bn to England and Wales’ Gross Value Added. Tourism represents a large portion of our members’ business interests; our 2020 member survey shows that 39% of members had a tourism-focused business.

Since 2020, the sector has dealt with a global pandemic and is currently facing a cost of living crisis. Households will be changing spending habits, and businesses will experience significant rises in energy costs. However, there may also be opportunities on the horizon – for example, the Rural England Prosperity Fund, the reorganisation of Destination Management Organisations (DMOs) in England and the opportunity for governments to see rural tourism as a key driver for economic recovery post-recession.

Changes to the rural sector

The change to agricultural subsidies post-Brexit means that farming businesses in England will lose a total of £1.87bn income a year from 2028. It is predicted that, on average, around 50% of this loss will be recouped from environmental schemes. However, the other 50%, approximately £935m, needs to be made up through diversification opportunities, such as tourism.

In Wales, assuming the Welsh Government moves away from direct payments altogether, the loss in Basic Payment Scheme payments will be £238m a year by 2028. This income gap will have a big impact on the wider economy in rural areas, so the 19% rural productivity gap could widen further. However, there may not be sufficient growth opportunities in the sector to make up for all of this loss.

The CLA’s vision is to influence governments’ policy framework to enable a sustainable level of growth that can be maintained without causing market saturation.

Supply and demand

The cost of fuel and materials (including food) in the supply chain has reached record highs. According to the Office for National Statistics (ONS), the monthly Consumer Prices Index inflation rate for April 2023 was 8.7%. The labour market may also be expecting higher wages, a cost borne by businesses.

While fuel prices have fallen, food prices continue to rise. For tourism businesses offering some form of catering, this must be reflected in increased prices or absorbed by the business, lowering profit margins.

Many tourism businesses will also have borrowings, which may have funded expansion, pandemic recovery or support for other areas of the wider business. The Bank of England has continually raised the base rate, and these rises could mean those with variable rate borrowing within their tourism businesses face substantial cost increases.

Tourism businesses – particularly those involved in overnight stays – have also seen further cost increases, such as laundry, housekeeping and depreciation of goods, which may be greater than inflation.

ONS data shows that in 2019, 16% of those working in the tourism industry were non-British nationals; of these, 64% were EU nationals. Post-Brexit, labour availability has proven to be a challenge. In a study by Cumbria Tourism, 73% of tourism businesses in Cumbria said recruitment was a problem, with more than half citing it as a “significant problem”. However, feedback from some CLA committees suggests that this trend may be reversing, with several members finding it easier to recruit staff.

Despite the challenges, there is no shortage of accommodation; indeed, over-supply may be a concern. Farms have been encouraged to diversify, which has led to increased availability of tourist accommodation in rural areas. Additionally, increased regulation in the private rented sector has caused some properties to shift from the private rented sector to the self-catered accommodation sector.

Available quality accommodation is important, as there is still a demand for tourism in the UK. However, the cost of living crisis will affect consumers as much as it does businesses, and there is evidence that this will impact spending. According to a research group, two in five people say they will reduce the number of trips they take or will not take any domestic trips. Of those that will take trips, one in three say they will moderate spending.

It is suggested that, as cost value is the highest consideration, businesses’ ability to price to recover increased costs depends on the market segment. If the business’s target market is wealthier, it may be possible to increase prices; if the target market is less wealthy, any increase in cost could see a greater reduction in demand.

The ‘empty nester’ group is predicted to include 22.6m people by 2024, and these households are likely to be much more insulated from the cost of living crisis than others. Of the UK population, 25% think they will be personally unaffected by the cost of living crisis, and many of these will be empty nesters. It is suggested that this group also cares more about sustainable travel, so if businesses can offer a sustainable product to members of this high-income bracket, their business may be able to grow despite the challenges.

Legislation on the horizon

The challenges of supply and demand within the tourism industry, both post-Brexit and during the current crisis, are compounded by upcoming and proposed legislation in England and Wales.

The Welsh Government has announced that, from April 2023, properties will need to be rented for 182 days a year before they qualify for business rates instead of council tax, and they must made available to let for at least 252 days. Also from April 2023, councils in Wales will be able to charge a council tax premium of up to 300% on ‘second homes’. If a self-catering property cannot meet the number of let days, it could be classed as a second home and face a higher council tax bill.

The Welsh Government has also consulted on introducing a visitor levy (a tourism tax), as well as consulting on the ability of local councils to vary the rates of the land transaction tax on second homes and holiday lets. These policies may be an indicator of what could happen in England, particularly if there is a change in government.

In England, there has been a consultation to create a new planning use class for short-term lets, something already brought forward in Wales. There could be restrictions at a national or local level, in England and/or Wales, to prevent properties being moved into the short-term/ holiday let use class.

In both nations, there are proposals to introduce licensing or registration schemes for short-term let operators. The purpose of these schemes is to increase safety standards and enable better data collection.

Recent successes

In England, there will be a new DMO structure. These will be replaced by new Local Visitor Enterprise Partnerships (LVEPs), which could be overseen by larger Destination Development Partnerships (DDPs). These bodies could receive multi-year core funding and will be tasked with increasing private sector investment for tourism in their area. The DDP structure is being trialled in the North East and the trial region’s board comprises existing DMOs. The CLA has been engaging with the trial.

During the pandemic, the government in England temporarily extended landowners’ ability to change the use of their land under permitted development rights (PDRs) from 28 days a year to 56 days. Many CLA members used this to diversify their business for part of the year to stimulate income, and the CLA called for the increase to be permanent. There has been a change to increase PDRs for temporary campsites to 60 days – find out more here.

Next steps

The importance of tourism to the UK economy, in particular the rural economy, cannot be overstated. There is a need to reinvigorate the sector and enable it to weather difficulties. The CLA has devised the following plan for rural tourism:

  • 1) Promote the value of tourism for projects to be funded by the Rural England Prosperity Fund.
  • 2) Ensure rural representation and rural proofing of the new LVEPs and DDPs.
  • 3) Extend PDRs for temporary uses of land.
  • 4) Introduce a permanent VAT reduction to 12.5% for tourism accommodation and visitor attractions with a turnover of less than £1m.
  • 5) Introduce restrictions on personal use to qualify for the Furnished Holiday Let regime.
  • 6) Re-establish the Rural Tourism Partnership.
  • 7) Introduce a single business unit to simplify tax administration for diversified businesses.

Key contact:

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Avril Roberts Senior Property and Business Policy Adviser, London