The Federation of Small Businesses (FSB) is Scotland’s leading business organisation and aims to help smaller businesses achieve their ambitions. These micro, small and medium businesses comprise almost all enterprises in Scotland (98%), employ over 900,000 people and turn over £93bn.
We welcome the opportunity to respond to the consultation on a Visitor Levy for Edinburgh.
Introduction
The Visitor Levy has potential to be a force for good in Edinburgh. Done right, it can provide the additional and distinct investment needed to make Edinburgh an even better place to visit and to support both the tourism sector in the city and the wider city economy and community.
The City of Edinburgh Council has been an enthusiastic and early adopter of new legislation to regulate and manage tourism in the city, but this has not always run smoothly, as the painful experience of STL planning and licensing shows. That’s why it’s important to use the opportunity to get Edinburgh’s Visitor Levy right first time.
Edinburgh is one of the UK’s primary tourism destinations and has a developed and diverse range of accommodation providers. Many of the accommodation businesses being tasked by the council to collect the levy are B&Bs, guest houses and small hotels. Many currently operate below the VAT threshold and do not have the same capacity as the multinational chains to administer the levy. The council needs to pay very close attention to these businesses and make sure it gets it right for them.
The draft Visitor Levy scheme
The council states that the administration of the Visitor Levy will incorporate a national online Visitor Levy portal, currently being developed by a number of Scottish local authorities. This portal will require early proof of functionality and must be fit for purpose and working from day one. New systems need time to be developed, for bugs to be identified and addressed, and for accommodation providers to be educated and trained in their operation. Lessons must be learnt from the council’s software issues in 2023 which led to thousands of city businesses suffering delays of 2 months or more in receiving their business rates bills following the last Non Domestic Rates revaluation.
The proposed levy rate of 5% is at the mid to high end of international comparators. Whilst we are comfortable with this rate as a maximum, it should also be remembered that UK VAT rates for tourism related activity are much higher than almost all European nations, and the council should be prepared to reduce this rate if the evidence shows a negative impact on visitor numbers. In addition, it must be remembered that many small accommodation providers in the city operate below the VAT threshold and the processing of the Visitor Levy by these firms could either push them above the VAT threshold or force them to artificially reduce their trade.
We welcome the proposal to set the maximum limit of the levy to the first 7 nights of a stay. This should assist where people are visiting the city for the purposes of business or work for an extended period, e.g. during the Festival. However, clarification is required on how the levy will apply to workers who work in the city for regular, but interrupted, periods. For example, those who work in Edinburgh Monday to Friday, returning home at weekends, and thus have recurring 5 night stays. Must they pay the levy beyond the 7 night limit enjoyed by those with uninterrupted stays?
We note that the levy will apply across the City of Edinburgh Council area and will apply to almost all types of accommodation, except temporary tents and caravans, and we understand the reasoning for this.
The scheme must include clear and detailed guidance for accommodation providers on how national exemptions to the Visitor Levy are to be dealt with. For example, what happens in the event of a person fleeing domestic abuse presenting themselves at a local guest house? Or someone whose home has been made uninhabitable as a result of fire or flooding? Must an individual in those situations really have to pay the levy then claim it back from the council at a later date? How will that person be expected to provide evidence of their situation?
From engagement with the Council’s briefing sessions as part of the consultation process, we understand the expectation is that most victims of domestic abuse requiring to be placed in temporary accommodation will be referred from other Council services, and therefore will not be required to pay a provider themselves. However, it is still essential that measures are put in place which do not cause distress to either the victim or the accommodation provider, where exemption verification is required due to a victim not coming through an ‘official’ route.
It is welcome that the draft scheme provides that the council shall be responsible for processing refunds to those exempt from the Visitor Levy but small accommodation providers will still need to explain the rules to guests who may sometimes be in stressful circumstances.
In the ‘Measurement and Reporting of Visitor Levy Objectives’ part of the draft scheme, there are objectives around visitor surveys but no proposals for regular monitoring of accommodation provider attitudes or experiences to help ensure the smooth working of the scheme. This kind of feedback would be invaluable in fine tuning the operation of the scheme to identify and resolve any unforeseen issues that may emerge.
The planned implementation date is 24 July 2026, right in the middle of the busy summer period. A period during which the draft strategy itself says 45% of levy revenues will be drawn from. Implementing the levy at a less intensive time of the year for the accommodation sector would ensure a better chance of a smoother implementation of the levy, with more opportunity to address any teething problems with the new system. The 24 July 2026 is the earliest possible date for this tax to be implemented, given the legislative hurdles that the council must overcome, and it would appear that this date appears to have been selected more through haste to implement the tax, rather than as a result of careful consideration of the need to properly prepare for the Visitor Levy and to fully consider the needs of the business community. Timescales must be revisited.
The planned provision to allow retention of a proportion of the levy proceeds for accommodation providers is very welcome, however even the small business rate of 2.5% will not be enough to compensate accommodation providers for additional credit card processing fees, let alone all the additional time and cost involved in processing the levy on the council’s behalf. In addition, by tying the small business/large business distinction to a business rates rateable value, this could lead to confusion as to which businesses will ultimately receive the small business retention, as rateable values may change as a result of the Non Domestic Rates (NDR) revaluation in April 2026. This and future revaluations could fundamentally change which businesses the scheme recognises as ‘small businesses’ despite no changes to the actual business or its size. This has the potential to sow confusion and could be seen as manifestly unfair where a business is reclassified due to a change in its rateable value. FSB would recommend using a system based on the characteristics of the business itself to determine whether it is a ‘small’ or ‘large’ accommodation provider, rather than the NDR rating system, which is neither an accurate nor a consistent measure. Should the council determine that it wishes to retain this measure, then the introduction of the levy should be delayed to enable the results of the 2026 revaluation to bed in. In addition, provisions would require to be made should any relevant revaluations be subject to a valuation appeal.
The draft scheme does not make it clear that s17 the Visitor Levy (Scotland) Act 2024 states that accommodation providers should potentially be geared up to process the levy from January 2025 (the proposed date of the local authority's decision to introduce a VL scheme) on paid or part-paid bookings for stays after the planned implementation date of 24 July 2026. This is not sufficient notice for small accommodation providers to devise and implement new schemes for this brand new tax. In addition, it is not clear that booking providers will be geared up for this either. We recommend that the council must delay its formal decision to implement a Visitor Levy scheme until booking systems are ready to handle such payments and accommodation providers are familiar with the Visitor Levy and its operation.
Visitor Levy revenues
Sections 13 and 19 of the Visitor Levy (Scotland) Act state that proceeds from the levy should be spent on “developing, supporting or sustaining facilities or services which are substantially for or used by persons visiting the scheme area for leisure or business purposes (or both)”. Given this statutory direction, it is difficult to understand how the council’s decision to prioritise spending of revenues on housing and participatory budgeting can be justified.
The spending headings of ‘City Operations and Infrastructure’, ‘Culture, Heritage and Events’ and ‘Destination and Visitor Management’ do match the priorities of the business community, as expressed in FSB’s Big Small Business Survey 2023.[1] These should represent the core spend from the levy, not the residue.
That said, the ‘City Operations and Infrastructure’ spending heading requires further definition to ensure that this is not providing alternative funding to existing council services. It has been suggested by the council during consultation events that this could include work such as removal of graffiti or street repairs, yet these seem to be part of the existing core council services that businesses should already expect in return for their taxes. Any funding applied from the Visitor Levy should demonstrate clear additionality over core council services. The entire proposed scheme for allocating the revenues raised by the levy should be reviewed by the Visitor Levy Forum before it is finalised.
The estimated running costs of the scheme have increased from £250k to set up and £500k annual running costs in March 2024[2] to £650k across two years to set up and £970k per year to run in August 2024[3]. This increase needs to be fully explained and justified.
The Visitor Levy Forum
Section 16(4) of the Visitor Levy (Scotland) Act states that:
The local authority must ensure that the membership of the VL forum—
(a)includes such persons as the authority considers to be representative of communities, businesses engaged in tourism and tourist organisations in its area, and
(b)consists of a reasonable balance of such persons.
FSB does not believe that the proposed composition of the Visitor Levy Forum meets the criteria set out in s16(4) of the Act. The council’s own estimates suggest that there are 178 guest houses and B&Bs in the city and 181 hotels, many of which are small, independent businesses. Yet the proposed Visitor Levy Forum comprises only one representative out of six from the accommodation sector – the very sector that will be solely responsible for the collection of the levy – and that representative is drawn from a group which represents only 50 of the city’s mainly larger hotels. The lack of direct representation from among small, independent accommodation providers is glaring, and indirect representation of this sector through the Edinburgh Tourism Action Group is not sufficient. If representation on the Visitor Levy Forum is to be balanced, then there must be direct representation from small accommodation providers as well as by individuals from the wider visitor economy.
Conclusion
Edinburgh’s Visitor Levy represents an opportunity for a new era of partnership between the City of Edinburgh Council and businesses operating in the city’s tourism sector. Whilst many businesses have historically been wary of the impact of a ‘tourism tax’ in the city, more have come to believe that, if it is implemented in a spirit of collaboration, it could herald closer co-operation and understanding between the council and the city’s visitor economy, and deliver the investment the city’s tourism offering needs if it is to remain world leading.
However, introducing a new tax to Scotland is no small undertaking, particularly where the day-to-day collection of the tax is to be handled by small business owners, many with limited experience and expertise, and where new IT systems are being developed to process the levy. Time must be taken to get this right and the timetable for implementation must be guided by the work needed in both the public and private sectors to perfect the operation of the Visitor Levy before it goes live.
In addition, the revenues raised from this tax must be spent on enhancing the city’s visitor economy and the tourism sector must have a clear and powerful role in helping to guide investment decisions. Enhancing our tourism infrastructure is a clear priority for business, as is investing in culture, heritage and events ad destination and visitor management. Spending in these areas should be clear and demonstrably additional to the council’s existing duties and responsibilities, and should be prioritised over plugging gaps in the city’s housing budget or diffusing cash to community councils. The Visitor Levy Forum will have a strong role in holding the council to account here and that is why its composition needs to truly reflect the city’s tourism economy and particularly those businesses shouldering the burden of collecting the tax.
Federation of Small Businesses
December 2024