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Exclusive: More embrace tourism tax to plug funding gaps

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Three more councils are considering drawing up plans for a tourist tax to help them fill the vacuum left by cuts in government grant funding, LGC has learned.

LGC has previously reported interest in introducing such a tax from Liverpool City Council, Bath & North East Somerset and Cornwall Councils and Cambridge and Oxford City Councils.

In recent weeks the new coalition between the Liberal Democrats and the Greens running York City Council have outlined their plans for a tourism tax while Camden LBC and Westminster City Council are also considering such a levy.

And last week, the Conservative candidate for Mayor of London Shaun Bailey told the Evening Standard that if elected next year he would raise an extra £48m a year by introducing a “London visitor levy” to help train an extra 400 police officers.

Tourism taxes are levied in some European countries such as Spain and Greece. In February, Edinburgh City Council agreed plans to add a £2-per-night levy to the price of a room for the first week’s stay from next year after the Scottish government’s opposition to the idea appeared to be softening.

The government in Westminster has so far been reluctant to consider allowing English councils the same freedom. However, Tony Travers, director of LSE London, says the issue is higher up the political agenda at the moment, partly because of the efforts of Edinburgh and the “relatively friendly” response of the Scottish government.

“I think that raises hope in England, because things like the smoking ban and plastic [bag] bans happen in Wales and Scotland first and then they’re introduced in England,” he said. “There is definitely a developing sense in local government that it needs new income sources.”

For such a tax to be introduced, primary legislation would be needed, unless the scheme could be introduced through a business improvement district. In January the Local Government Association agreed it would lobby government for the freedom to introduce a tourism tax. A York City Council spokesperson said they would also be making to case to government for statutory changes.

Keith Aspen, leader of the Lib Dem group that shares power with the Green Party admitted that the details need to be ironed out. “We continue to keep a close eye on developments in Edinburgh and other cities to see what progress is made,” he said.

The Lib Dems in York are suggesting income from the tax could be used to fund “frontline services which matter to residents, like street cleaning and road repairs”, adding that a consultation would seek the views of businesses as well as residents.

Last year, Westminster City Council became the first local authority in the UK to introduce a voluntary community contribution to run alongside the council tax, and is now proposing to pilot taxes around the services people use when they visit the West End.

Leader Nickie Aiken (Con) said: “Millions of tourists enjoy famous venues for free; is it not now reasonable that they make a small contribution toward that in the same way we see in other European cities?”

A Camden spokesperson said discussions there were “still at an early stage” with “no firm proposals as yet”.

A survey last November of more than 1,000 holidaymakers by World Travel Market found 45% were supportive of a tourism tax being introduced in the UK, indicating that the concept would have some public support. But it also risks a backlash from business vested in tourism. UK Hospitality chief executive Kate Nicholls told The Caterer last November that such a tax “would only damage businesses already crippled by rising costs”.

Mr Travers believes that where tourism taxes have already been introduced, such as New York, it hasn’t put people off visiting.

He said: “I think the trick would be that at least some of the money would have to go back to making the tourism industry a better experience for visitors.

“Politicians think ‘why don’t we use this money [from a tourism tax] just to plug the gap created by earlier cuts?’ It’s a perfectly legitimate argument, but the trouble is it means the tourism and related industries will be even more oppositional than if they think they’re getting something back.”

However, Peter Murphy, director of the public policy and management research group at Nottingham Business School argues that a tourism tax is “not the panacea” some believe it to be. “It would add to maldistribution and would raise a relatively small amount of revenue.”

The Institute for Fiscal Studies published a paper in March looking at a range of possible new revenue streams for local government, including a local tourism tax. It acknowledged the “currently significant interest in tourist taxes”, but added that the economic case is “far from clear cut”. “While such taxes would be administratively feasible and would raise useful amounts in a few well-visited areas, they would raise little money in many more places,” it said.

Mr Travers says that until now, England has had very precise levels of tax equalisation compared to other countries. “The challenge here is if you propose fully equalising a tourism tax, you give no incentive for the authority, certainly the district or borough authority, to introduce it in the first place, because they would lose all revenue,” he said.

Mr Travers proposes equalising the tax at the city regional level rather than a national level, in order to limit geographical disparity issues.

There are precedents for setting such unequalised local taxes, such as the off-street parking levy in Nottingham and the congestion and ultra-low emissions zone charges in London.

Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy told the Commons housing, communities and local government committee last week that allowing councils to introduce a tourism tax would “add to the funding that is available”.

“Compared to other systems around the world, we are not funded by a plurality of tax, and this puts too much pressure on council tax and business rates,” he said.

The Treasury wouldn’t be drawn into answering questions about whether they are considering enabling councils to set tourism taxes in the future, telling LGC it keeps the tax system “under constant review”. “English local authorities already have significant taxing and charging powers,” a spokesperson said.

 

 

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