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Home » Tough Decisions On Holidays And A Welsh Tourism Tax

Tough Decisions On Holidays And A Welsh Tourism Tax

With the Easter break upon us, it would be expected that many families would be packing their suitcases and going away for their first proper holiday of the year.

However, many of those in the tourism and hospitality industry have expressed major concerns that the current cost of living crisis will have an adverse effect on their businesses as household spending is cut back.

As the Office for National Statistics recently noted, there are several factors which continue to put pressure on individuals and businesses.

As we all know, the price of consumer goods and services rose at the fastest rate in four decades in the year to October 2022. In particular, the prices of food and non-alcoholic drinks have risen at the fastest rate in more than 45 years with the price of basic food such as vegetables going up by 18% in the 12 months.

Whilst interest rates have risen to deal with inflation, this has had a direct effect on housing costs with more than a third of British adults paying rent or a mortgage saying that they are struggling to afford them. In addition, four in ten said that these payments had risen in the previous six months.

People are also cutting back on shopping with retail sales volumes down 3.5% on the same month last year, as the volume of goods sold fell throughout 2022.

There is also evidence of reduced spending in pubs and restaurants with more people are eating in at home because of cost-of-living pressures and increased prices – annual inflation rate for alcohol and food in these establishments increased to 11.4% in the year to February 2023.

All of this is having a direct effect on a tourism industry which is still struggling to recover from a torrid couple of years when it was effectively shut down by government regulations due to the Covid pandemic.

Essentially, the increases in the cost of living means that many households are having to make difficult choices over their holiday plans for 2023. This is being exacerbated by airlines and travel operators suggesting that prices are also set to be higher this summer.

Some in the tourism sector have suggested that, as result, bookings will hold up but spend will fall as people hunt out bargains. Others, such as the travel company On the Beach, have reported that holiday bookings for three-star destinations are starting to drop due to rising bills.

In other words, holidaymakers who would traditionally book cheaper trips have been forced to rein in their spending. Whilst some bookings may hold up especially by wealthier holidaymakers, spend may fall as people hunt out bargains.

Given these pressures on the tourism industry, some are questioning the recent decisions to introduce tourism taxes by various public bodies.

Manchester became the first UK city to introduce a charge to stay in hotel rooms and its so-called City Visitor Charge will generate £3m annually. Its objective is to boost tourism and overnight stays to the city and it is actually supported by 73 hotels and serviced apartments who have signed up to the scheme.

In contrast, there seem to be little support by the tourism industry to the new visitor levy which the Welsh Government has indicated it will introduce to Wales sometime in the next two years.

Those that support the new measure argue that as an overnight tax for holiday accommodation is already prevalent across many European cities, the cost to visitors will be low and the additional funding generated will help support the infrastructure needed to help develop tourism across Wales.

Yet the VAT rates on tourism in those European cities are already considerably lower than the 20% charged across the UK and therefore the overall cost will be higher than competitor regions overseas. Also, there seem to be no guarantees over the cost of the tax or what it will be used for.

As we all know, politicians rarely abolish any tax measures and once introduced, there is always the temptation to increase them to deal with any financial shortfall. Unless there is a guarantee that councils will spend the proceeds from the tourism tax will be spent on supporting cultural activities and improving visitor experience, it could be used to address any gap in funding caused by the current financial climate.

But perhaps the biggest disappointment is that there seems to have been a lack of interaction between those making decisions on legislation in Cardiff Bay and the tourism sector in Wales. This reflects the poor relationship that had developed during Covid when business owners complained that the Welsh Government seemed over-zealous in enforcing Covid regulations on many tourism and hospitality businesses.

If the tourism industry is to thrive in Wales, then the public and private sectors must work more closely together.

At the very least, there should have been a more serious effort by the Welsh Government, before announcing its plans to introduce the visitor levy, to work alongside tourism operators and industry representatives to examine any alternatives to this tax and develop a collaborative approach to supporting an industry that has been hit hardest by the double whammy of the Covid pandemic and the cost of living crisis.

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