Scottish Government should ditch its tourist tax plan and put a new levy on under-used second homes instead – Ben Edgar-Spier

A tax on empty second homes would encourage people to sell or let them, easing the housing crisis

Staycations have been growing in popularity over the past decade, with the pandemic accelerating this trend, and demand for short-term accommodation is higher than ever. Alongside this, there has been a call for tighter regulation within the holiday let sector, with the introduction of a licensing scheme for short-term lets in Scotland last year.

Now, the initial debate and vote is taking place at Holyrood on a Bill to give local authorities new powers to tax overnight stays. Firstly, the creation and management of a tourism levy, with its many proposed complexities, is costly and represents another admin burden for already stretched local authorities. For example, a Midlothian Council report said that the council is likely to secure around £180,000 in annual revenue from the levy, while the cost to operate it could be between £190,000 to £500,000 a year.

We also need to consider that the tourism sector is already highly taxed, including business rates and corporation tax as well as VAT. Instead, the focus should be on making sure, via Westminster, that this revenue is getting to the local Scottish communities that need it, and in which it is raised. It is much more efficient to redirect existing taxation than saddling local authorities with another tax scheme.

A tax on tourists would discourage them from coming to Scotland (Picture: Andy Buchanan/AFP via Getty Images)

Tourist tax will discourage overnight trips

Both the new licensing rules and the proposed tourism tax also fail to consider the significant benefits the sector brings, and present a risk to the local economies throughout the country that rely on tourism. A report we commissioned by Oxford Economics showed that short-term let-linked spending was worth £3.8 billion to Scottish GDP and supported 65,000 jobs in 2021. Of course, this is only a small part of the accommodation on offer and total tourism spend, so the overall figures will be much higher.

Introducing a tax on visitors will discourage overnight trips to Scotland. This decision hugely influences the success of hundreds of thousands of Scotland’s small businesses – including holiday let owners and those with tourism-reliant businesses – and therefore the economies of high-tourism areas. This argument is supported by an all-party parliamentary group’s report which calculated that day visitors spend, on average, £36 in comparison to overnight visitors who spend £193 per visit.

Tourism taxes have been levied across the continent to reduce and restrict tourist numbers – such as those in Amsterdam and Barcelona. Instead of discouraging visitors, risking their tourist pounds, which I understand is not the government’s aim, there should be a focus on increasing the tax in other areas that don’t contribute anything to local economies.

The terms ‘second home’ and ‘holiday let’ are often used synonymously but the two are completely different. According to an Action on Empty Homes report, there are 47,333 empty homes in Scotland. If introducing a levy, it makes sense to apply it to these vacant buildings or underused second homes, which both contribute little. A tax such as this would also encourage people to either sell empty homes or let them. A levy could also be used to address landbanking by taxing land with planning permission that’s being held and not developed, which is a big problem when analysing housing shortages.

We wait to see where these proposals ultimately end up but know that a tourism levy isn’t the way to go. Holyrood should ensure existing taxes go to the local communities across Scotland in which they’re raised before burdening accommodation providers and local authorities with a new system. Attention also needs to be paid to other factors which add nothing to local economies but instead contribute to housing shortages.

Ben Edgar-Spier is head of regulation and policy at Sykes Holiday Cottages