Memorandum submitted by the Highland Council
The Highland Council welcomes the additional
opportunity being given to local authorities to respond to the
House of Commons Culture, Media & Sport Select Committee inquiry
into tourism.
Whilst recognising that many areas of policy
that affect tourism are devolved matters there are however three
main issues affecting Highland tourism that are the responsibility
of the Westminster Government:
— VAT on tourism services and
fuel tax duty
— the work of VisitBritain
— air links to and from the Highlands.
The Highland Council therefore wishes to provide
further detail on the challenges that these pose for the tourism
industry in the Highlands and to this end a memorandum covering
those issues is enclosed. Also included by way of a summary is
a copy of the paper presented to and approved by the elected Members
of the Highland Council's Planning Environment and Development
Committee.
As requested in your letter, the Highland Council
are happy for this information to be published.
SUMMARY
The Westminster Government is currently undertaking
an inquiry into tourism. This report outlines some tourism issues
that are affected by UK policies and incorporates a draft response
for Members' comment.
1. INTRODUCTION
1.1 Earlier this year the House of Commons
Culture, Media & Sport Select Committee commenced an inquiry
into tourism. While the initial closing date for written submissions
has passed and the second stage of holding oral evidence sessions
does not commence until the autumn, the Select Committee have
invited local authorities to comment by 1st October 2007 in an
attempt to secure more responses to the consultation. The Select
Committee has acknowledged that many areas of policy that affect
tourism are devolved but there are areas where UK policy has an
effect on tourism in Scotland.
2. TOURISM ISSUES
AFFECTED BY
UK GOVERNMENT POLICY
2.1 There are three main issues affecting
Highland tourism that are the responsibility of the Westminster
Government:
— VAT on tourism services
— the work of VisitBritain
— air links to and from the Highlands.
2.2 The current Inquiry into tourism provides
an opportunity for the Council to comment on these issues and
to this end a draft response is attached as an Appendix to this
paper.
2.3 Both the Council's Tourism Working Group
and the Highland Area Tourism Partnership have previously debated
the issue of VAT on tourism services and raised this with both
the Scottish and Westminster Governments. This issue is closely
allied to the Council's Administration commitment to "work
with the Scottish Government on their policy of removing the burden
of rates for the smallest businesses entirely and reducing rates
for others".
2.4 Although VisitScotland market Scotland
in a number of key international markets, increasing international
tourism to the Highlands is still to an extent dependent on the
work of VisitBritain, an organisation whose work is directed by
the Westminster Government.
2.5 There are concerns in the Highland tourism
industry that the key route to London Heathrow and Gatwick could
be lost due to the competition for landing slots. The current
Council Administration programme includes an objective to "continue
to work to safeguard Inverness to Gatwick and Inverness to Heathrow
flights".
3. RECOMMENDATION
Members are invited to approve, with amendments
as appropriate, the draft response to the House Of Commons Culture,
Media & Sport Select Committee Inquiry Into Tourism.
1. INTRODUCTION
1.1 The Highland Council is the local authority
responsible for providing services to a population of 215,000
inhabitants across a large physical area (1/3 of Scotland) that
is one of the most peripheral parts of the United Kingdom and
indeed of the European Union. The Highland Council provides significant
funding towards VisitScotland's operations in the Highland area
and supports industry initiatives to develop the sector. Additionally
the Council itself is heavily involved in tourism particularly
in the provision of tourism services including sports and archaeological
events, countryside ranger led activities, paths and cycle routes,
picnic areas, parks and gardens, visitor centres, museums, leisure
centres, public toilets and street cleaning.
2. TOURISM IN
THE HIGHLANDS
2.1 Tourism is the area's most important
industry bringing direct expenditure of over £584 million
(2005 figures). Indirect expenditure brings an estimated further
£158 million with much of this supporting other parts of
the Highland economy eg food producers. Over 13,000 people are
employed in Highland tourism (13.5% of the workforce) and this
excludes the tourism related self employed. The importance of
tourism to the Highlands also extends beyond the economic benefits,
for example, by:
— Helping sustain community facilities
such as village shops and leisure facilities.
— Helping to sustain communications
such as road and rail public transport as well as air routes which
become justified by the volume of inbound tourism.
— Enhancing the profile of the
Highlands which is essential in attracting people to live, work
and invest in the area.
3. ISSUES AFFECTING
TOURISM IN
THE HIGHLANDS
3.1 Highland tourism is affected by a number
of issues common to other tourism destinations such as changing
consumer behaviour (a move towards more but shorter breaks), seasonality
and the growth in the number of new tourism destinations. However,
these difficulties are compounded by the physical distance of
the Highlands from main centres of population and the higher cost
base that makes it more difficult to compete with other areas.
Whilst the policies required to tackle some of these issues are
the responsibility of the Scottish Government, others fall within
the remit of the UK Government.
3.2 The Effect of VAT on Tourism Services
Being a consumption tax, VAT is ultimately borne
by the final consumer and is not therefore a direct charge on
businesses but, in practice, as the application of this tax does
impact on the prices charged by the business it directly has an
impact on business competitiveness. Hence, as it is known that
price is a key determinant of tourism demand (for example, any
changes in foreign exchange rates affects the volume of inbound
visitors), charging a higher rate of VAT will reduce the volume
of visitors. Research undertaken by the Highland Council Tourism
Team for the Highland Area Tourism Partnership showed varying
levels of VAT applied across the European Union with most countries
having a standard VAT rate and a reduced rate that is applied
to certain goods and services. Of the 25 EU countries, 21 apply
a reduced rate of VAT to hotels and 12 apply a reduced rate to
restaurant meals.
3.3 As can be seen from the table below
which includes Scotland's main competitor destinations and some
emerging competitor destinations, the UK has:
— the highest rate of VAT on hotels
— the third highest rate on restaurant
meals
Our competitors benefit from lower VAT rates
thereby increasing their price competitiveness.
|
| Country | Standard VAT rate
| VAT on hotels |
VAT on meals |
|
| Spain | 16%
| 7% | 7%
|
| France | 19.6%
| 5.5% | 19.6%
|
| Ireland | 21%
| 13.5% | 13.5%
|
| Italy | 20%
| 10% | 10%
|
| Austria | 20%
| 10% | 10%
|
| Czech republic | 19%
| 5% | 19%
|
| Poland | 22%
| 7% | 7%
|
| Slovenia | 20%
| 8.5% | 8.5%
|
| UK | 17.5%
| 17.5% | 17.5%
|
|
3.4 Work by VisitScotland on a number of tourism taxation
scenarios has suggested that a reduction in the rate of VAT would
not only stimulate further demand but could, through increasing
levels of business, also contribute increased revenue to the Treasury.
3.5 It is the Highland Council's view that due to the
detrimental effect on the competitiveness of the tourism industry
VAT should be reduced allowing Highland businesses to compete
more effectively with those in other destinations.
3.6 The Burt Report into Local Government Finance has
recommended that consideration should be given to introducing
a discretionary power for Local Authorities to apply a tourism
tax. While it is acknowledged that such taxes are relatively common
in other countries and are positively directed to tourism related
services and product development, it must be recognised that the
introduction of such an additional tax burden on tourism businesses
where already VAT is disproportionately high, will add further
to the cost to the consumer and further disadvantage the Highland
tourism industry against Scotland's main competitor locations.
Any discussion on the introduction of a tourism tax should be
considered in context of a reduction in VAT. Whilst the Council
wishes to press for the overall tax burden on business to fall,
at least if VAT was reduced and replaced correspondingly by a
tourism tax, the tax revenues collected could be used locally
to improve tourism services and the tourism product, thereby improving
competitiveness through quality rather than price.
3.7 The Effect of Distance on Prices and Competitiveness
In broad terms the cost of providing goods and services in
the Highlands is higher than other parts of the UK, due to a large
part to its relative remoteness and the related transport costs
this involves. As VAT is a value related tax applied at a fixed
rate on the price of goods and services, the addition of VAT has
a disproportionate effect in higher cost locations like the Highlands.
To illustrate this, the following example demonstrates that if
transport and other costs add 5% to the cost of an item with a
UK base price of £50.00 the end cost to a consumer in the
Highlands is compounded by the imposition of VAT:
|
| UK
| Highlands |
|
| Ex VAT price | £50.00
| £52.50 |
| VAT @17.5% | £8.75
| £9.19 |
| Total price | £58.75
| £61.69 |
|
| Price difference, including higher Highland cost plus VAT+£2.94
|
It can be seen therefore that the imposition of VAT has,
due to the higher cost of goods and services, a disproportionate
effect on the Highlands making it more difficult to compete even
with other UK destinations.
3.8 One of the most notable examples of the higher cost
of goods and services is that of fuel costs which are consistently
higher in the Highlands than elsewhere in the mainland UK. This
is detrimental to tourism as both the distances involved and the
fact that car travel is often essential due to the limited public
transport services mean visitors to the Highlands face an additional
cost burden made worse by the double imposition of fuel tax duty
and VAT when visiting the area.
3.9 The Work of VisitBritain
To a large extent the promotion of the Highlands to tourists
is dependent on the work of VisitScotland, particularly as a large
part of the existing market (85-90%) is from the UK. However,
increasing competition from other destinations along with improved
access is leading to the loss of some of this market to other
countries. To sustain and indeed increase the level of tourism,
therefore, requires in part more international visitors to be
attracted. To a degree this can be done by VisitScotland but it
also requires significant work by VisitBritain particularly in
emerging markets such as Russia, China and India where VisitScotland's
presence is limited. There is evidence, at least anecdotally,
that VisitBritain staff are unfamiliar with the tourism product
outwith Edinburgh and Glasgow and so are less able to effectively
promote the area.
3.10 Air Links to the Highlands
The expansion of flights to regional destinations from Inverness
has been of welcome benefit to the Highlands but connections to
and through London are still the most important connections for
Highland business and tourism. Heathrow links are vital in part
because it is the UK's main international gateway particularly
for North American visitors (one of the key international markets
for the Highlands). The recent change of operator from British
Airways to Flybe on the route to London Gatwick has reduced the
options for through ticketed flights to and from the rest of the
world further emphasising the importance of the Heathrow link.
There remain significant concerns in the Highlands that the demand
for landing slots at London's two principal airports could see
those used for links to Inverness replaced by more lucrative international
routes. The Highland Council believe that for the sustainable
development of the Highland economy, the London routes and in
particular the Heathrow to Inverness route should be protected
by way of a Public Service Obligation.
September 2007
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