Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 320-337)


11 MAY 2004

  Q320 Chris Mole: You would be able to deliver more if the local authorities were able to support your sorts of projects more?

  Mr Lewis: Clearly we would and if they had the ability to raise that revenue. Some of them appear to be able to do so; others do not and again I do not understand the reasons for that.

  Q321 Chris Mole: You must be aware of the housing situation in the south west and the problems associated with it. What view does the RDA have on this notion that if the council tax was abolished the problem could be made worse or better and the effects on house prices of abolition?

  Mr Lewis: The RDA does not have a formal policy view because it is not something that would figure high on our agenda.

  Q322 Chairman: You must be concerned as to whether house prices go up or down.

  Mr Lewis: Clearly we are concerned about house prices. I would say that if it was debated by the RDA we would not be in favour of the abolition of some sort of tax related to property. There will be issues of equity that need to be addressed but generally speaking any move that might increase house prices in the south west we would be opposed to, because one of the key constraints on economic development in the south west is affordable housing. That is a key issue for us. What we did want to put into this debate in terms of blue sky thinking is that we would rather see any taxes that were introduced to fund local authorities to be both drivers of economic change as well as raisers of revenue. Therefore, we would in principle support congestion charging. Workplace car parking charging would be another good example of something where we could tackle the constraints of the current infrastructure in the south west in terms of making it an attractive place for business to come.

  Q323 Christine Russell: Mr Cornish, in your view, just how aware are the council tax payers of the south west of the importance of tourism to your region? Do you feel there is a real, true awareness of the pressures on local authorities to keep the streets clean, keep the loos open and provide those public facilities because of the importance of tourism to your local economy?

  Mr Cornish: Again, it is difficult to answer such a general question.

  Q324 Christine Russell: Do you get the impression that all the council cares about are tourists; they do not care about others?

  Mr Cornish: Having said it is difficult, I am going to try and answer it. In the areas which come to public attention because of the loos being locked or whatever it may be, there tends to be a lively, local debate in the local paper. Therefore, to that extent, council tax payers are well aware of the problems. Council tax payers tend to be very well aware of the pressures which tourists can bring to bear on a rainy day in Truro, with traffic jams and all the rest of it. Everyone who watches television knows perfectly well what the problem is. The problem is, on that particular occasion, bad weather, too many tourists and too few facilities and roads in a bad state. The answer generally, in those areas of the south west which are full of tourists, is yes, by and large, council tax payers are pretty well aware.

  Mr Sanders: Tourism tends to come under economic development within local authorities. It does not really fit very comfortably there. The economic development is often about trying to attract inward investment or to help existing businesses grow and to promote the area in that way. With tourism, there are some direct services that have to be funded by councils. You need more public toilets per head of population because of the visitors. You need more parks and gardens. You probably need more sports facilities. You have to pay, in my constituency, for illuminations all year round that you would not find perhaps in Bridgewater but you would find on Paignton sea front. None of those costs is adequately funded or recognised in central government funding. They are part of the discretionary spend. Is there not a failure in the council tax system to recognise some of those additional costs that do fall disproportionately on a local population, many of whom, although they benefit from being in a tourism area, do not see a direct benefit from that investment. That needs to be corrected.

  Q325 Chairman: A question please.

  Mr Cornish: Because local authority budgets generally are under pressure, because tourism is a discretionary area, eyes turn towards the tourism budget extremely easily. That said, I think there is scope for local authorities to make whatever they can save in their tourism budgets stretch considerably further. We are engaged in a strategy covering the next ten or so years a central point of which is persuading local authorities to reorganise the way they manage tourism destinations. I can go into the details if you want but suffice it to say at the moment that we believe firmly that there is considerable duplication, waste, among many local authorities simply because there are about 215 self-proclaimed destinations scattered around the south west, an awful lot of them essentially doing their own thing. We want to change that fairly radically. Over the long term, we will to a considerable degree succeed. That will not save money but it will mean that what is in tourism budgets can stretch a lot further. There is a bit of light at the end of that particular tunnel, I hope. Generally speaking, these budgets are under pressure. We see it with tourist information centres being put under threat, not by people who think they are unimportant, but by people who have to save the money.

  Q326 Mr O'Brien: Mr Cornish, the Local Government Association has suggested that other forms of local taxes could help from local government and one of those is a tourist bed tax. What effect would that have on your members if it was introduced?

  Mr Cornish: As I said at the beginning, tourism is a competitive business. Many visitors are prepared to pay for a quality product. By definition, an additional tax, particularly as it would come on top of existing taxes which are very high for the tourist, would not improve the product. Indeed, it would hamper the ability of the business to invest in product and in staff. This is also difficult for a different reason. About 45% of the £8.3 billion per year which visitors spend in the south west is spent by day visitors, people who do not stay in hotels. Our research has shown that for every pound the tourist spends only 21p is spent on accommodation. You are hitting only part of the target with a bed tax.

  Q327 Chairman: You want to hit the whole target with a tourist tax?

  Mr Cornish: The one bit of the target you are hitting are the people we desperately want to see in the south west who are overseas visitors. We are running a £15 billion trade deficit in tourism but you can guarantee that whereas the guy who comes down from London can just about do it in a day the overseas visitor is bound to be staying in a hotel, and would be bound therefore to be hit by a bed tax.

  Q328 Chairman: If that tourist is going to have choices of lots of tourist destinations, a very large number of tourists now around the world have some form of tourist tax, do they not?

  Mr Cornish: If you look at the tourism tax that is levied in France, (a) it is a low-ish tax but (b) it comes on top of a VAT rate of 5.5%. We are comparing apples and oranges. Yes, various people do levy some kind of tourism tax but it does not come swingeing in on top of existing taxation levels which are very high. We now have a severe problem with the bed tax, as have all the associations which represent hoteliers and so on.

  Q329 Mr O'Brien: How do you see the services that provide for tourists being paid for by tourists?

  Mr Cornish: If this was an easy question to answer, I am sure it would have been answered long ago.

  Q330 Mr O'Brien: That is why I am asking you.

  Mr Cornish: I do not see one easy answer. I can indicate ways in which local authorities can stretch their tourism budgets further. I can argue the case for a congestion tax on access roads provided it helps the objective of spreading the burden—in other words, operating only at peak times. I can argue the merits of a degree of privatisation of some of the things that worry local authorities the most. It so happens that a small number of the privately run beaches in the south west are rather well run with rather good amenities and make a tiny profit. I can argue that particular case.

  Q331 Mr O'Brien: Would you not consider that a bed tax would be easier and more efficient to provide some of the costs for services?

  Mr Cornish: I think a bed tax would send people away.

  Q332 Mr O'Brien: This is for the Development Agency. A tourist tax would undoubtedly provide extra resources for authorities in the south west. What is your assessment of the possibility of negative effects as have been pointed out by Mr Cornish? Is there anything in favour of such a tax?

  Mr May: We have done a bit of an assessment of this as we are concerned about tourism as a key sector of the south west economy. It is a very important sector. We are the biggest UK destination for tourism of all the English regions, as I am sure you know. Our position is slightly different from France. We would strategically aim to improve the offer of tourism in the region. Many of the tourist offers in the region are not the big, glamorous venues like Eden or the Tate at St Ives. Everyone has heard of those. The typical visit to the south west often has issues of quality there. Driving up quality is a strategic aim for us. In the light of that, some kind of tourism tax is something we would not rule out. We are cautious about this.

  Q333 Mr O'Brien: Would it contribute to the regeneration of the areas?

  Mr May: It depends. If the revenues were retained within the region and deployed upon improving the tourist infrastructure in some hypothecated way, obviously that could be very beneficial. A lot turns on the context of this. We looked at examples of New York where a bed tax was introduced in the early 1990s. It had to be abolished after four years. It had exactly the effect that Francis has described of driving away visitors to a change of location. I think a similar thing happened in Majorca, where a flat rate per night bed tax was introduced at an unsustainable level. However, there are European examples where there are local, fairly low levels of taxation which are directly ploughed back into the tourism industry. That is the kind of model I think we are interested in.

  Mr Cornish: We are very concerned, as is the RDA, with driving up quality. We would argue however that, at the end of the day, driving up quality is a matter of persuading private businesses to invest, every bit as it is a matter of persuading somebody to improve the roads. Secondly, just to give us all encouragement, we ought perhaps to look at the example of Ireland, which decided to halve its VAT rates applicable to tourism in the mid-1980s. As a result, between 1983 and 1994, VAT rates were halved and revenue from those VAT rates doubled.

  Q334 Mr Betts: The Local Government Association drew up a list of various local taxes that could be considered. We have dealt with the bed tax. Congestion charging found a bit more favour with you. Other examples like local sales taxes have been mentioned as well. Are there any of the others from the LGA shopping list that you would consider might be appropriate?

  Mr May: I think you are going to hear from the LGA in a later session, so I will not try and pre-empt what they are going to say. We have looked at their wish list. There are things in there which have appeal, a bit like the model of the tourism tax. If we could raise revenue on a sustainable level, not excessively burdensome, which could then be kept within the region to tackle regional economic development objectives, we would be quite interested in that. Greener taxes, for example. Some kind of congestion charging comes to mind in the south west.

  Q335 Mr Betts: Any ideas about greener taxes? Any examples?

  Mr May: The LGA have posited all sorts of things like plastic bag taxes in an Irish model. I am not sure what we would think of that, but there might be ways in which the environmental assets of the region—we have a wonderful physical environment, which is one of the main economic drivers o the region; people come because of the open spaces, because of Exmoor, Dartmoor, the national parks and so on—might be sustained and protected by revenue raised. That would be a very beneficial and benign cycle which we should get into. It does depend upon this thorny issue of hypothecation of these taxes, that we would raise and spend them wholly locally on specific objectives, not lose them into some general pool of revenue. That would just be seen as another level of taxation and obviously any government would be very cautious about simply introducing another tax.

  Q336 Mr Betts: One of the ways in which local authorities do raise quite a lot of money is fees and charges, but most of those fees and charges tend to be prescribed by central government and just about cover the costs of the service that is being delivered. Would you favour greater freedom for local authorities to be able to increase those charges, set them at what the market would bear and use the money for purposes that might be appropriate locally?

  Mr May: Generally liberating local authorities to be more creative about that, yes, we would certainly sustain that argument.

  Q337 Mr Betts: Even if some of those charges fell on business?

  Mr Lewis: If they are for services and there can be a clear assessment of the value for money, we do not see why not. Business would not want to pay, obviously, a greater share of the existing costs but if they were for services that were improving I do not see why they should not. In particular, one of the taxes that the RDA would be prepared to put its head above the parapet on and promote, which the business community would not want, is workplace car parking charges. There is a congestion problem in a number of our towns which is a constraint on economic development and we have to encourage people out of their cars. An obvious way to do this and to assist employers to introduce themselves charging for the workplace parking is to make it a taxable benefit. That is something that we would support and I hope the headlines are not too unkind tomorrow.

  Chairman: Can I thank you very much indeed for your evidence?

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