Is England right to introduce a tourism tax?

Supporters tend to call it a “visitor levy”. Detractors prefer to call it a “tourist tax”.

Whether you agree with it or not, an extra charge for overnight stays has become a common feature of modern travel. Recent visitors to New York, Prague, Milan and Edinburgh will have already paid it. And now mayors in England will have the chance to impose it.

Some think these fees will cause huge damage to the hospitality sector, while adding to the general cost of living for visitors. But the main argument in favour of the charge is that it is a simple way of raising much-needed revenue.

A report I worked on for the Welsh government showed that a well-implemented visitor levy can indeed have a positive effect on the tourism industry.

Looking at destinations in Italy, Iceland, Spain and the US, the evidence suggested that a tourism tax can bring benefits to the local community while also improving sustainability, by funding environmental projects, for example.

But getting it implemented turns out to be far from simple. There are key elements which have to be decided upon, and different places – big cities and coastal towns, for example – need different approaches.

One reason for this is how tightly tourism is woven together as an economic system. Nobody in that system operates in isolation.

Accommodation providers, restaurants, attractions, local business and residents are all tied together, and a decision that affects one of them ripples through to the others. Policies made in other sectors, such as farming or international trade, also have an impact.

This is why researchers refer to tourism as an “open complex system” – to account for the dependencies and connections which surround it. The effects of any levy should be monitored regularly to see how it affects other sectors.

It’s also hard to predict how levies will affect where and when tourists spend their money. There is good evidence that people tend to set an overall budget for their holiday, and when one cost rises, the total budget stays the same.

For example, research suggests that a price increase in accommodation often leads to less money being spent in restaurants and shops or on activities, rather than tourists spending more overall. This means that a levy’s true cost may end up being paid by businesses that will only marginally benefit from any funds it raises.

Who receives those funds, and how those funds are spent is another key factor.

Some places with tourism levies have set up specialist organisations charged with the management of the funds.

In Jackson Hole, Wyoming, the local tourism board channels part of the levy revenue into public transport, a local radio station and a wildlife foundation. In Gunnison County, Colorado, funds go towards maintaining and restoring mountain-biking trails.

In Catalonia, money has been used for floral displays and streetscape improvements, while in the Balearic Islands, levy revenue has funded 19 units of subsidised social housing in Palma.

Levies can also be used to influence when and where tourists visit. Also in Catalonia, the tourist board has stopped marketing the region during peak season, and funds are used to promote tourism during quieter months.

The levy was dry

Visitor levies can also do damage to destinations which openly compete with rivals on being an affordable place to stay. Benidorm in Spain, for example, is often considered to be cheaper than other nearby resorts. There, and in similar places, a levy is likely to have a negative effect on its appeal.

And a levy aimed at mitigating the negative effects of overtourism driven by day-trippers won’t be very effective if it only targets overnight stays. It may even discourage the overnight visitors a destination actually wants.

Skegness pier. Electric Egg/Shutterstock

An overnight levy in Venice did not resolve the negative effects of day visitors, and the city is now charging an entrance fee during the high season.

So, there is no single design that fits every destination. Big cities like London and Manchester are less price sensitive than coastal or rural destinations such as Skegness or Rhyl. Business travellers are largely indifferent to cost, while families with children may be very sensitive to it.

If levies are to be introduced in England, all of these differences and nuances need to be taken into account and carefully examined. Get the details wrong, and a levy could end up undermining the very sector – and community – that it was meant to support.