Tourist tax not the answer to local authority underfunding
FOR whatever reason, possibly its more congenial hemispherical shape, the Scottish Parliament behaves closer to what people probably expect of a legislature than Westminster currently manages.
So, come September, it was kids back to school, MSPs back to Holyrood, and First Minister Nicola Sturgeon announcing the Government’s legislative programme.
Fourteen Bills, including the Transient Visitor Levy Bill, or, as it’s much better known, Edinburgh’s tourist tax – or, by supporters, the wee tourist tax.
It represents a ministerial mindchange, but one backed by most locals. In last winter’s public consultation, the SNP/Labour City Council claimed 85 per cent of all respondents backed its proposed room levy – £2 a night or 2 per cent of total room cost for the first week’s stay in “all paid accommodation” – estimated to raise between £11 and £15 million each year.
It also claimed the support of a convenient 51 per cent of responding accommodation providers, though UKHospitality reckoned that constituted just 87 or 4 per cent of those operating in the city.
The industry is already disadvantaged, the trade association argued, by the UK being one of only three EU countries not to apply a reduced VAT rate to visitor accommodation, and it wanted much greater clarity on exactly where the generated income will go.
Sound familiar? It certainly should, because our own Birmingham City Council, having expended £117 million of its reserves in just two years simply to keep going, would very much like the receipts of a similar hotel occupancy levy – £1 per night for a three-year period – to help pay for the 2022 Commonwealth Games.
Put to the Council’s Resources Overview and Scrutiny Committee back in February, though, it received at best a mixed reception, Conservative Cllr Meirion Jenkins earning some easy publicity by
pronouncing it “stark raving bonkers”.
Without knowing him personally, I wouldn’t be surprised if Cllr Jenkins regularly encounters phenomena that strike him as some degree of bonkers.
His scepticism here, though, was shared in higher places, when the council’s well-briefed members of our Upper House, Lords Hunt of Kings Heath and Snape of Wednesbury, tried recently to persuade ministers to introduce an almost last-minute “hotel occupancy levy” into the Birmingham Commonwealth Games Bill.
Their Lordships were far too refined to use Jenkins’ b-word, but the idea did receive a polite, though I thought unmistakeable, brush off.
However, the Birmingham Mail (July 24th) reckoned Ministers had indicated a willingness “to consider a ‘hotel tax’ in Birmingham” to help fund the Games, so I could be wrong.
Certainly, words to that effect were uttered by the junior Culture, Media and Sport Minister, Lord Ashton of Hyde.
Unfortunately, though in office for under a fortnight, Lord A was reshuffled the following day and, lacking Amber Rudd’s status, had not at the time of writing been replaced.
No matter, much more important here is the context: his closing speech in a mini-debate in which the Government was firmly refusing to accept the Hunt/Snape amendment to the present Bill for reasons already rehearsed several times.
Birmingham’s successful Games bid had been based on an agreement to a 75:25 per cent split of the now £778 million investment costs between the Government on the one hand and the council and partners on the other.
All concerned acknowledge that Birmingham and the West Midlands region will benefit from that investment.
The council, at the time and subsequently in its current Financial Plan, committed itself to meeting its financial obligations, asserting that it could do so without impacting on existing services.
But now, at the tail end of the legislative process, it proposes what would be England’s first-ever hotel tax.
The noble Lord would not have dreamed of using the old US fairground phrase, ‘Nice try, but no cigar’, but, to me anyway, that was surely his message.
There is, though, a bigger question here. Birmingham’s financial difficulties aside, is any kind of tourist tax part of the solution to local government’s systemic underfunding?
To which the currently most informed response would seem to be: as anything more than short-term sticking plaster, probably not.
A recent report specifically on tourist taxes by the All-Party Parliamentary Group for Hospitality was not unsympathetic to the case made by affected local authorities, but also very clear that “a significant reduction in VAT on hotels to a level comparable with other European countries” would have to come first.
Much weightier in every respect, though, was the Institute for Fiscal Studies’ (IFS) earlier research-based analysis, Taking Control: which taxes should be devolved to English local government?
Impossible to summarise properly, but I’ll try for the gist. Should any be devolved?
Yes – local governments in most comparable countries either control or receive assigned revenues from a range of significant non-property taxes: sales taxes (US, Canada, Italy, Spain); corporation tax (Germany, Canada, Denmark); vehicle taxes (Belgium, Spain).
Devolved taxes would be a natural extension to business rates retention, and better than national taxation plus even greatly increased grant funding.
There are several feasible options – more local powers over council tax and business rates; devolution of stamp duty or land tax; devolved corporation or sales taxes.
IFS’s conclusion, though, is that, among large taxes, income tax is the strongest candidate for partial devolution – say, a 3p flat-rate local income tax on all income bands. Tourist taxes have necessarily limited applicability and are no answer to the long-term problems of local government funding. Think bigger!
Devolved taxes would be better than national taxation
Chris Game is a lecturer at the Institute of Local Government Studies, at the University of
Birmingham