Investment in Scottish hotels is under scrutiny tonight with news that Edinburgh Council is looking to introduce a so-called “tourism tax” expected to raise around £15 million a year. The idea is to add between one pound and £4 per night on the cost of staying at hotels in the Edinburgh area. It seems as though the idea has the backing of the Scottish government although there has been no formal announcement from the SNP.
Is this a fair tax?
When you bear in mind the millions of pounds invested in hotels across the UK, the corporation tax paid by companies and the cost of employing staff, could an additional so-called “tourism tax” force some companies to the wall?
Historically hotel investments are very difficult assets from which to make significant returns and this new charge is probably the last thing that hotel companies expected. There is even talk of varying the charge per stay to take into account busier periods including festivals and Hogmanay. This will have a significant impact upon the return on investment hotels are able to create if, as many expect, hotels are not able to pass this charge directly onto customers.
What would these additional funds be used for?
There is talk that any funds raised by a “tourism tax” would be ring fenced for investment in festivals, events and the Edinburgh tourist industry. Quite why the council feels the need to funnel yet more money from the business sector is anybody’s guess. Historically, many taxes which we take for granted today were introduced on the basis that any funds raised would be ring fenced for specific purposes. The facts and figures we accept as the “norm” today suggest that this is not always the case.
There are serious concerns that if Edinburgh City Council is able to push through this “tourism tax” then it is only a matter of time before other councils follow suit. In effect Edinburgh City Council would have broken the back of this unpopular tax and others would follow with very little in the way of a backlash from voters.
Calculating investment returns
The building of property assets such as hotels involves meticulous long-term planning to ensure that the figures add up. Even the slightest change in income and individual room yields could make a previously viable hotel investment very difficult to justify. There is a suspicion that Edinburgh City Council is simply taking advantage of a buoyant property market under the guise of investing in the tourism industry. Surely businesses in the tourist industry invest enough in marketing and advertising themselves?
Is this an opportunist fundraising? Or a justifiable means of raising additional taxes to improve the Edinburgh tourist footfall?
We have to say that the potential introduction of a “tourism tax” on Edinburgh hotels is one of the most bizarre we have heard in recent times. Adding between one pound and four pounds per night will squeeze margins in the hotel industry and increase the cost to the general public. There is also concern as to which other areas of the property market could be targeted next…