Tourism Tax: A blessing or a curse

Tourism taxes are not new, but are seeing growing use across the world with 16 destinations in Europe now utilising them in some form. They are seen as a tool to assist areas coping with mass tourism by helping to control visitor numbers as well as offering a new and vital source of revenue to be reinvested into the local area.

Edinburgh is the most visited UK city outside of London welcoming some 2 million overnight visitors in 2017 – a figure that has soared 30% from 2015.  In its research into the effect of implementing a Transient Visitor Levy (TVL) the city council argued that alongside its beneficial effects, tourism “produces external effects, such as congestion, pollution, higher prices, and other perceived inconveniences to residents.”

Therefore, a motion has been presented by some city planners to impose a £2 or 2% per night TVL on accommodation for the first seven nights of a visitors’ stay.  It is a divisive recommendation as some city planners claim it will raise up to £11 million in tax revenue for the city while industry bodies, including UKHospitality, estimates that the measures will potentially cost Edinburgh £45 million.

STR’s Tourism Consumer Insights team set out to bring more clarity to the issue by undertaking our own primary research.  Using our Edinburgh Visitor Survey we polled recent visitors to the city to gauge their perceptions on a tourism tax and to capture additional data to enable a deeper understanding of the economic impact such a tax might have on the city.

Visitors were asked if they agreed or disagreed that a tourism tax was a good method of raising funds to improve tourism services and facilities in a destination.

There was sharply divided opinion regarding the role of tourist taxes as a means to fund local services in a destination. A third of travellers believed that it was a good idea, whilst around a quarter were against the concept. The remainder of visitors – some 42% – were either undecided on the issue or were unsure of their opinion. As a result there was a sense that visitors lacked sufficient knowledge or understanding of the benefits and downsides of such a tax, which is perhaps unsurprising given the broad spectrum of views and ongoing debate on the issue in Edinburgh.

When asked what effect a tourist tax would have on their overnight stays in Edinburgh, three out of every four visitors to Edinburgh said that a tourism tax would have no effect on their stay. Another positive sign for the acceptance of the TVL is that only 2% of travellers said they definitely wouldn’t travel to Edinburgh.

Our evidence suggests that a tourist tax would see a reduction in spend for 9% of travellers who would choose cheaper accommodation to help deal with the cost of the tax.
Meanwhile, 6% of tourists indicated they would have visited the city but stayed outside of it to avoid paying the tourism tax. Combined with the 2% who would not visit at all means that, based on our research, 8% of Edinburgh’s current overnight visitors would not be contributing to the TVL.

Our analysis of accommodation average expenditure reveals an interesting variation between those who would not change their plans to visit compared to those who would. Those who indicated that they would not be put off by a TVL in Edinburgh spent on average £60.74 per person per night. Meanwhile, those who indicated that they would cancel their trip or stay elsewhere spent significantly less (£39.85 per person per day) on their accommodation. These results imply that it will be travellers on a tighter budget who are more likely to alter their behaviour in response to a tourism tax in Edinburgh.

In addition to evaluating the impact of the tax on the accommodation sector, our research examined if the tax might have associated impacts on visitor spending in other aspects of the visit.

As shown above, there is a cross-section of travellers (14% of our sample) that are likely to reduce their spending during the trip. In particular, our results show that domestic travellers and those aged 25-34 years are most likely to adapt their budget to compensate for the additional cost as a result of the tax. In addition, it was interesting to see a negative knock-on impact of the TVL on non-accommodation expenditure among both high and low spending travellers. Overall, therefore, there was a sense that different types of travellers – and not just budget travellers – will adjust their spending in Edinburgh to compensate for any accommodation tax.

Our research has set out to evaluate the potential impact of the possible introduction of Transient Visitor Levy of £1 to £2 per night for shorter-stay travellers.

Many destinations both in the UK and internationally will be keenly watching Edinburgh to evaluate the pros and cons of this new source of revenues in an environment of ever pressured and often diminishing tourism marketing and infrastructure budgets.

Over the coming weeks and months, we’ll continue to investigate and report on the impact of this fascinating topic.

If you are interested in finding out more about Edinburgh visitors’ reactions to a potential tourist tax or any other issue please contact us at infotci@str.com.