October 23rd 2017

As debate about a tourist tax takes off, Victoria Winckler answers five questions about why we think it’s a good idea and how it could work.

Our proposal that the Welsh Government should consider introducing a ‘tourist tax’ under its new taxation powers has provoked an extraordinary reaction. Since the Cabinet Secretary for Finance included the idea – along with two other proposals of ours – in his draft budget, there’ve been dire warnings from the industry, a petition, a debate in the Senedd as well as some pretty unfriendly emails to me. Quite a reaction to sixteen words in a document on tax policy.

So to inform debate, here are the answers to five key questions.

1. Why a tourism tax?

The tourism industry emphasises its economic benefits to Wales – according to the Welsh Government, the industry adds about £8.7 billion to the economy and supports around 242,000 direct and indirect jobs.

We hear rather less about the economic costs of tourism – the traffic congestion and carbon emissions it produces, the waste generated by hotels and restaurants that needs collecting, the littering of streets and beaches, the policing of major events and maintenance of popular mountain footpaths to name but a few. And on top of this there’s the cost of supplementing incomes of people in the many very low paid jobs in the industry and the mpact on the availability and affordability of housing.

We think it’s fair and reasonable that those who put an additional burden on the public purse should give a little bit extra to help to meet the costs. We have a tax on waste disposed of in landfill sites, we have a duty on air travel and taxes on carbon and so why not on tourism.

2. What would a tourist tax involve?

Nobody knows what the Welsh Government has in mind.

Our idea was that overnight visitors staying in serviced accommodation would pay a modest levy – perhaps £1 a night. The total levy could be capped if the Welsh Government desired, and a lower rate could be applied if the Welsh Government wanted to other types of accommodation e.g. caravans. We envisaged it being collected by local authorities, based on declarations by accommodation providers.

But there are many other ways a tourist tax could be levied and these will need to be worked out.

3. Would it drive away tourists?

The simple answer is that we don’t know.

With the average visit to Wales lasting less than 4 nights, visitors would pay a mere £4 extra per person. Would the cost of a cup of coffee at a motorway services really be enough to make them go to Bodmin instead of Bangor? I doubt it, but the Welsh Government’s economists will need to do some modelling of the impact to find out more.

Wales would not be alone in having a tourist tax – many EU countries already have levies e.g. in Barcelona and Venice, and more are planned e.g. a stay-over tax in Greece and Norway. Nor would Wales be alone in the UK – a tourist tax is under discussion in Bath, Hull, London and the Isle of Skye.

Indeed, the tourist tax could help to increase visitor numbers and, crucially, drive up the value of the industry. Our proposal was that the revenues generated would be re-invested in infrastructure and services that support tourism – car parks, staff training, higher standards in accommodation and marketing – if that was what’s needed.

4. Why should the government help the tourist industry?

Good question.

It’s impossible to find out just how much the Welsh Government and local authorities spend on promoting and supporting tourism, but there’s no shortage of schemes. Visit Wales reportedly had a budget of £37 million a few years ago, there’s the Tourism Investment Support Scheme and the Tourism Amenity Support Scheme as well as support for major events and numerous local authority initiatives. Some have argued that public support for tourism in Wales compares unfavourabley with that in, for example Scotland or Northern Ireland.

There’s a debate to be had about government support for business in general and in particular for undertaking its marketing. If the tourism industry thinks more should be spent on marketing Wales as a destination, it could be argued that the industry should pay for it with the obvious method being by a levy of some sort. With levies on businesses to cover the costs of apprenticeships, this is not something completely unheard of.

5. When will the tax come in?

The Welsh Government has listed a tourism tax as one of four ideas it could take forward. Even if it does decide to go ahead, it has to submit a very strong case to the UK Government and get the permission of both Houses of Parliament before it could even begin to pass the legislation to raise a tax. Unlike George Osborne’s sugar tax and apprentice levy, the Welsh Government can’t just announce a tax and then collect it. In other words, a Wales tourist tax is a long way off and may not happen.

And so …

Wales’ new tax powers are a game changer. They mean that the Welsh Government is much more accountable for the money it spends and it also adds an important new tool to achieve change on the ground. As such, a tax such as a tourist tax – and the other ideas of a tax on disposable plastic packaging – needs mature and informed debate.

Victoria Winckler is Director of the Bevan Foundation. Find out more about our work on devolved taxes here.