Tourism Tax: what will it do? How will it affect rural tourism businesses?

The Welsh Government is committed to introducing a Tourism Tax. What will its impact really be? Could it work to support our rural tourism businesses? Nigel Hollett met tourism industry leaders and Members of the Senedd, and blogs.
Welsh Government Visit Wales promotional image
The welsh Government has supported the growing tourism industry with strong publicity campaigns led by its agency, Visit Wales.

“It might not happen. It might take a long time, or it might be delayed until 2026, the end of this Senedd. Equally, it might not happen everywhere in Wales, and criteria - yet to be determined – might even exclude some parts of the industry. Enough doubt surrounds the Welsh Government’s Tourist Tax proposal that it’s tempting to wait for firm proposals. However, the issue was raised in a Senedd event during Wales Tourism Week, I think that a consultation process could start as early as this autumn, and it’s timely to create a strong argument to support members in rural tourism.

Proposed in the Programme for Government for this Senedd and last autumn’s Cooperation Agreement between Welsh Labour and Plaid Cymru, the forces driving the proposals are ideological, social and economic. The Welsh Government is looking to tackle the crisis in supply of affordable homes and address loopholes associated with second homes and Council Tax. Some areas have seen the vital structure of the community denuded by the proliferation of holiday lets – and the closure of schools, community centres, local services and businesses. Many CLA members themselves agree that something needs to be done.

I have come across many members who have developed holiday letting businesses, who have invested heavily in bespoke tourist accommodation and now feel under severe threat.

Fundamental to the issue is the need to distinguish between the affordable housing crisis, second homes and a genuine holiday letting industry which is inextricably tied-up with agriculture and other rural business and which is critical to the economy.

In the rural context, it’s often the wider members of farm families who manage holiday lets: a large proportion of them are women. The Welsh Government itself invested millions in supporting farm diversifications, millions in Visit Wales promoting the industry and more in supporting the sector in the Covid 19 lockdowns. However, while the Government acknowledged the importance of the sector, its’ Welcome to Wales: Priorities for the Visitor Economy 2020-2025 plan said: “growth must serve to sustain – not threaten – the things that matter most.”

Tourism already contributes to the public purse via conventional taxes. In the rural environment, the sector is widely dispersed, operated with relatively modest capacity, low margins, highly seasonal and susceptible to inclement weather. Rural tourist accommodation is already feeling under pressure following tough times in the pandemic and facing other regulatory challenges: changes in planning legislation and in thresholds determining liability for Business Tax and Council Tax. Before local authorities, impose a blanket levy, they must assess the implications for their local tourism industry and how the tax might affect other tax flows.

The pandemic revealed the sector’s vulnerability, but tourism is big business in Wales. It’s worth around £6.3 billion to the country per year – visitors spend around £17 million a day, about 10 per cent of our workforce work in the sector – the fastest-growing part of the Welsh economy. That’s already money going into the Welsh economy, supporting communities in non-industrial areas, providing vital seasonal and part-time employment and often supporting marginal farm businesses. Arguably, a well-managed levy could generate resources that might support the industry: investment in accommodation, attractions, amenities, guides and promotion in the face of intense competition. In fact, Rebecca Evans MS, the Welsh Government Finance Minister said, the intention is that local authorities will invest the proceeds to “manage and invest in the services and infrastructure, which make tourism a success.”

Tourism taxes are common elsewhere in the world but vary considerably. Many are levied at a local rather than a national level, obviously to target hot-spots. Charges vary from as little as 0.10 to 7.50 Euros per person - per night, in Bulgaria and Belgium respectively. A stay in a campsite will cost you 0.10 Euros in Paris – but in the same city, you’ll pay 3.00 Euros in a three-star hotel – plus additional local taxes. Other places, like Berlin and Vienna, charge a percentage of accommodation cost. Japan and New Zealand charge a one-off fee – however many nights you stay. Here in the UK the idea isn’t new either. A UK local government inquiry looked at it in 2007, the Scottish Government consulted on it in 2019: it remains on-hold. The “UK-first” belongs to the London Borough of Hackney, which launched a voluntary levy project in 2014, which is invested into a community fund.

In the Welcome to Wales plan, the then Deputy Minister Lord Dafydd Elis-Thomas MS wrote, “We will listen to the industry.” The tourism sector’s representative bodies have already made the point that the industry needed special support in the past two years, and even where levies exist internationally, other taxes like VAT are reduced to create room for the local tax. Understandably, industry-lobbying groups object to local taxes, which impinge on competitiveness, which might drive tourism business elsewhere in the UK. Equally, Welsh visitor taxes on accommodation in Wales might simply fill beds in the English border counties – and create a disproportionate image problem.

The most subtle of commentators look at the prospect of Tourism Tax in the light of the wider business issues faced by owners of holiday lets. The Welsh Government needs to look at the gamut of regulatory changes affecting the sector. These include occupancy-rates, tax thresholds, and Council Tax surcharges for additional homes. In the countryside, the Government must understand the fiscal-regulatory impacts on holiday letting businesses when their assets are undergoing maintenance, repair or improvement – or small businesses, which are put-on-hold owing to illness or caring responsibilities - and the business assets, are not generating income. We need the solution to be simple, however, avoiding a complex structure of occupancy-levels and tax rates. The existing HMRC model could be adopted.

The very human issues affecting small rural businesses in Wales really must be considered when the Welsh Government is looking to act on an impersonal “sector of the economy.” We are already working with likeminded partners in the tourism sector – and making representations to government.