Call to axe Edinburgh’s bed tax plan as hotel revenues plunge

Fresh figures from accountancy firm PKF show that even a drop in prices could not persuade tourists to stay, with occupancy rates down 3.9 per cent in March.

Alastair Rae, a partner at PKF in Edinburgh who specialises in the hospitality industry, warned yesterday that the sector was too “fragile” to support the tax, which would raise little revenue and could harm a sector already struggling with rising costs.

A transient visitor levy, dubbed a bed tax, was first mooted by Edinburgh City Council last year but plans to introduce it were quashed by the Scottish Government, which said it was beyond the scope of local authority power. The new Labour/SNP-led council has pledged to revive plans for a charge of between £1 and £2 a night per hotel room, by seeking permission from Westminster. It says the levy could raise between £5 million and £10m a year.

Rae said: “Edinburgh has seen a marked drop in occupancy coupled with a substantial drop in revenue during March. This indicates that even dropping room prices has not helped maintain occupancy in Scotland’s capital.”

He stressed that while a single month did not indicate a trend, it was notable that Edinburgh’s occupancy and revenue numbers should both have dropped.

“It should be noted that the sector remains fragile and is prone to performance fluctuations and rising costs,” Rae added. “Therefore, a further charge on tourism in Edinburgh is at best ill considered, and at worst potentially harmful to the future of the sector. The council needs to realise that imposing a tax on an empty room will not raise much revenue.”

Hotels across Scotland as a whole saw occupancy and revenues fall in March, underperforming the rest of the UK – a reversal in fortunes as until recently Scotland had been enjoying better occupancy and revenue growth than south of the Border.

Occupancy rates in Scotland fell by 0.1 per cent during March to 66.6 per cent – the lowest rate for any part of the UK – compared with an increase of 1.3 per cent in England. Rooms yield, the industry measure of revenue, fell by 0.7 per cent in Scotland to £42.14. In England it was down 0.5 per cent to £41.13. Wales was the chief winner, as occupancy soared by 7.4 per cent and revenues rose 10.3 per cent to £42.88 per room.

Aberdeen, where the strength of the North Sea oil industry has kept demand for accommodation high, continued to outperform the rest of Scotland, while Glasgow also fared well during March with an increase in revenue of 4.6 per cent despite a fall in occupancy.

Edinburgh hotels, which enjoyed the best revenue rate in Britain last summer thanks to a trend for “staycations” and riots south of the Border, saw yields dwindle to £43.66, down 8.9 per cent year-on-year.

Edinburgh council leader Andrew Burns said “all the options” would be considered, both from a legal and viability point of view, in a further consultation.

“No decision will be taken until all interested parties have had their say,” he said.