Letter from Welsh Government: Response to WTA Questions in relation to Tourism Tax Proposals

 Responses from Welsh Government - April 2022
1. Are any of the proposed purposes statutory?  If so, shouldn't they be funded out of general taxation (back via block grant and RSG)?  If not, why not?
The Written Statement, available at: https://gov.wales/written-statement-development-local-tourism-levy sets out that the purpose of the levy is to raise revenue for local authorities, to enable them to manage and invest in the services and infrastructure which make tourism a success.  We intend to explore views on the policy in more detail as part of the formal consultation planned for the autumn.  Feedback received via the consultation process will inform the further detailed design of the levy.
 
2. If they're not statutory (or even if they are), what is the ratio of residents' use: visitors' use?  Visitors can't be asked to subsidise locals' use of services whereas vice versa is acceptable because of the money visitors bring into the council coffers via primary and secondary spend with businesses who (a) pay business rates and (b) wouldn't be there/be as profitable without visitors.  Subsidising visitor use is an investment which benefits residents in (a) creating sufficient demand for a service which may not otherwise be provided for residents and (b) local economy/jobs.
Another purpose of the levy is to draw a more direct link between the impact of visitors and the local services upon which they both rely. A levy can rebalance the burden faced by local residents to fund some of these services which are particularly affected by visitors.   
We have not developed a specific model to determine levy spend depending on the ratio of use by local people versus use by visitors.  The consultation will explore how revenues raised through the levy could best support the services provided by local communities, and that attract visitors. 
 
3. What mechanism will be employed to ensure that monies raised will be used for additional activity in the purposes.  Whether the money is ringfenced or not, councils can still displace current spending which would be diverted to other priorities.  That would destroy the argument that tourism tax is being used for improved tourism offer.
 We intend to explore these issues in more detail during the consultation.  This could include the role of a form of hypothecation in the design of the tax, as well as exploring potential reporting arrangements to support local accountability and transparency for revenues raised.
 
4. The SSA on street cleansing, road maintenance and waste disposal already reflects the additional need created by visitors in addition to that of residents.  Whether the SSA is accurate or adhered to by councils is a matter for them, but WG will argue that they have made suitable provision through the RSG.  What mechanism is being considered to ensure that no tourism tax take will be applied to these three budgets, or monies displaced from them?
Enhanced population data, which includes day and night visitors, is used within the Local Government Settlement formula to distribute funding to councils across Wales.  The local government settlement is not ring-fenced to particular areas and it is for each authority to decide how it spends their resources along with income raised locally, in line with its own priorities and pressures.
While we intend to explore the role of a form of hypothecation of the tourism levy during the consultation, we also support the principle of local authority autonomy.  A levy would be a discretionary power, enabling each local authority to decide whether to introduce a levy, in line with its own priorities and pressures.  The amount allocated to a local authority area via the Revenue Support Grant would not be directly affected by whether or not an area chooses to introduce a levy.
 
5.  Preliminary research undertaken by the industry indicates that the proposals for the threshold changes to distinguish between self catering lets liable to NDR cf council tax will not be achievable for a sizeable majority of businesses.  They will have to migrate to the council tax regime (or close their businesses where the new premium also makes council tax unaffordable).  This will substantially reduce the number of businesses who can be required to implement a tourism tax.  What impact does this have on the viability of a tourism tax once the costs of collection/administration are taken into account?
As part of the impact assessment for the policy we will consider the impact of wider changes, including the changes to legislation being introduced to amend thresholds for self-catering properties.  We intend to share an initial version of the impact assessment as part of the consultation and will further refine this as the work progresses.

6. The industry has been supportive of a statutory registration scheme in order to help protect quality and distinguish between well-regulated businesses and casual lets, and to help councils take enforcement action against non-compliance.  What impact on the willingness to register has been identified if it is seen as a way to identify businesses who must charge tourism tax, rather than the purposes which made it a popular idea with the industry?   How much of the tax take will be spent, instead, on failure to register instead of action against casual lets?  
There is, of course, a perverse incentive to switch to the casual let environment in counties where the new premium is not adopted; councils will still be getting tax income from that tourism activity because their choice not to charge the premium means that activity is still financially viable for the owner.  This does nothing to secure quality/health & safety in the self-catering sector.  The combination of tourism tax and the threshold proposals threaten the existence of the professional bona fide self-catering businesses, not the second home owner who offers casual lets whenever it suits them.
 While there may be practical benefits in linking a statutory registration and/or licensing scheme with a future system to administer a tourism levy, there are a number of benefits associated specifically with bringing forward statutory registration and/or licensing.  As per your question these would include ensuring the quality of tourist accommodation within Wales.
 As with other Welsh Government policies the potential impacts of a statutory registration and/or licensing scheme, including potential costs, will be considered during development.  These impacts will be summarised as part of the integrated impact assessment prepared for the area.
 
7. The tourism tax, as proposed, is a bed tax.  While this is the commonplace model, it also targets the market that WG is trying to grow as it brings the higher spend and lower environmental impact than day visits.  If the principle is "polluter pays", we would have expected to see a model aimed at the day visitor.  What is the impact of the proposals on WG's own policy of growing the number of overnight stays?
As per your question visitor levies are a common feature in tourist destinations internationally. They can support the conditions that make tourism a success by providing an opportunity for visitors to make an investment in local infrastructure and services.  Planned research alongside outputs from the consultation will inform design choices to maximise the potential benefits of a levy whilst mitigating any burden.
 The Written Statement referenced earlier sets out that opportunities for wider contributions on the cost impact of other types of visitor activities on local infrastructure will also be offered as part of the consultation.
  
8. The UK is not on all fours with those other countries which implement a bed tax as it does not enjoy the compensating factor of a lower VAT rate.  It is not enough to adopt the commonplace model without assessing the impact of that compensating factor.  How do you plan to identify this?
VAT rates are set by the UK government however we will consider the impact of VAT rates and other taxes in relation to the design of a levy.   While VAT rates for hospitality are lower in other countries, the UK does have the highest VAT registration threshold in the EU and Organisation for Economic Co-operation and Development (OECD), which benefits many in the tourism industry.
 
9. What work is planned to identify the impact of displacement, ie customers choosing to stay in a neighbouring county and travelling into the tax-raising county; what impact on both tax take and occupancy rates? Potential impacts will be explored through research and summarised within the regulatory impact assessment. There is limited evidence to suggest this type of displacement effect occurs based on the experience of other governments.
 
10.  What work is planned to identify the impact on secondary spend?  Every pound spent - per person, per night - is a pound less spent in the local economy which employs local people.  The suggestion has been a tax take in the £millions:  That is £millions taken out of the pockets of NDR-payers and the council tax payers they employ. Potential impacts will be explored through research and summarised within the regulatory impact assessment.
 
11.  As well as being clear what impact assessments will - must - be done, how much does WG know about what councils currently spend on enhancing the offer specifically for visitors (as opposed to residents)? How much do they spend on destination marketing and their wider role within destination management?  Without expertise in these fields, any council spend on mitigating the effect of visitors is bound to be inefficient and poorly-informed. In response to the questions above, we will be conducting research into the wider economic impacts of the tourism levy as part of impact assessment work. This will include consideration of displacement effects as well as tourism multipliers. We intend to share an initial version of the impact assessment as part of the consultation and will further refine this as the work progresses. Local authorities are democratically elected and accountable to the local populace. It is for local authorities to determine their spending priorities.
 
12. What thought has gone into preparing draft guidance to accompany any new secondary legislation, to ensure consistency of criteria, administration, additionally and spending purpose?
This will be considered at a later stage of the legislative development process.  However, we do intend to reflect on the feedback we receive from the consultation, alongside our own legal advice in considering which elements of the policy are included in primarily legislation, and which may be more appropriate for potential secondary legislation and guidance.
 
13. The prospect of a bed tax was floated and dropped five years ago.  What were the reasons it was unviable then and what has changed to prompt its revival?  The potential of a tourism tax in Wales has been considered for a number of years, for example being raised in the final report of the Independent Commission on Funding & Finance for Wales dated July 2010.  Welsh Government’s Tax Policy Report dated October 2018 further set out progress on work to explore a potential tax alongside exploring the potential benefits- this made clear that it would be a longer-term, deliberative piece of work.  
No decision was reached that a tourism tax would be unviable however progress was impacted by the response to the coronavirus pandemic. The updated programme for government document published in December 2021 has now made a clear commitment to introduce legislation permitting local authorities to raise a tourism levy, hence officials resuming detailed engagement.
 
14. Bearing in mind that, in 2019, that around 25% of overnight stays were by residents of Wales and similar if not increased percentages during the Pandemic years, are you planning any programme to exclude/refund Welsh residents? The open consultation taking place later this year will provide a platform for a range of views to be considered in relation to the design and operation of a visitor levy. 

Thank you again for your email and I hope this response addresses some of your queries.
 
 
Kind regards,
 
Elin Morgan
Visitor Levy Partnership and Comms Lead, Welsh Government
 
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