Debate on fiscal support for tourism and hospitality in coastal areas, 22 February 2024

• Financial pressures on local government are limiting the ability of coastal local authorities to regenerate and support their towns. We are calling on the Government to provide long-term, sustainable funding for our seaside towns in the Spending Review.
• Councils already face severe budgetary constraints; in October we estimated a funding gap of £4bn over the next two years. We welcome the additional funding announced in January, but a significant funding gap remains.   
• The LGA has previously published research into how 13 areas have undertaken a cultural approach to regeneration – an approach that requires good connectivity. While this type of approach underpins the visitor economy, the aim is to create thriving communities where people are proud to live and businesses are keen to invest.
• The LGA’s Work Local model is a blueprint in how to unlock local growth. It provides local leaders with the powers and funding to work with local partners to join up careers advice and guidance, employment, skills, apprenticeships, business support services and community outreach. The LGA’s ‘Supplying skills for the local visitor economy’ looked at how this approach would work for tourism businesses.
• Whilst the core funding in coastal areas is on par with non-coastal areas, more core funding is needed to meet the deprivation challenges within coastal communities, according to a Pragmatix Advisory report commissioned by LGA Coastal Sig. These deprivation challenges often include poor transport infrastructure, digital connectivity, healthcare facilities, an aging population and as a result, disproportionately high levels of deprivation. They are also one of the UK’s most fragile and vulnerable environments, and local authorities work hard to ensure they are properly defended from flood risk and coastal erosion. 

With the growing threat of very hot summers, especially in the traditional sunny areas in mainland Europe, it is likely that many people will want to stay in the UK which will potentially have very significant benefits to the national economy in terms of spending and job opportunities. For example, in North Yorkshire, tourism is now worth £1.5 billion annually and supports around 11,000 jobs directly and indirectly in the holiday industry, and Scarborough will shortly be celebrating its 400^th anniversary as a spa town.

The LGA commissioned Pragmatix Advisory to explore the economic challenges facing rural and coastal areas, with a particular focus on deprivation, and outline what steps government can take to strengthen the recovery and resilience of these communities within the current context.

National economic growth can only be achieved if every local economy is firing on all cylinders. Only with the right powers and adequate long-term funding which allows councils to plan properly, can we play a lead role in unlocking the labour market, building new affordable homes, creating jobs, plugging skills gaps and delivering on other key government priorities. The LGA is developing a white paper with an ambition to secure a national-local partnership in which local government can work to its full potential for our people, our places and our planet.

Devolved funding and increased influence on design services that meet local needs and priorities, rather than to one-size-fits-all approach, will strengthen our ability to create inclusive local economies. What works for major cities is different to what is needed in suburbs, towns, rural and coastal areas and more mixed communities.

Coastal areas have a fundamental role in trade and commerce and provide an important national resource in terms of food production, aggregates and offshore energy. They also play a significant role in the visitor economy.

Financial pressures on local government are limiting the ability of coastal local authorities to regenerate and support their towns. We are calling on the Government to provide long-term, sustainable funding for our seaside towns in the Spending Review. Future funding for coastal areas must focus on helping to extend the season and mitigate seasonal variation in employment.   

While tourism prospects are positive in many areas, the loss of previous industries such has fishing has left communities with a limited range of alternative employment sources. Strengthening the diversity of employment options in coastal communities would help mitigate against the seasonality and fluctuating demand that are frequently key features of tourism. Other sectors such as renewable energy are a strong developing industry for coastal areas, and work is being done to develop the appropriate skills to support work locally. This should complement promoting or invigorating tourism, to ensure a resilient local economy that can sustain employment outside of seasonal peaks. However, it is important that these new industries genuinely employ local people and do not bring in external employees on temporary relocation plans. This does not help develop the area sustainably.

The LGA has previously published research into how 13 areas have undertaken a cultural approach to regeneration – an approach that requires good connectivity. While this type of approach underpins the visitor economy, the aim is to create thriving communities where people are proud to live and businesses are keen to invest. This approach is supported by more recent investments through the Levelling Up Fund and UK Shared Prosperity Fund, but more needs to be done to ensure the visitor economy is considered in determining other government funding decisions. For instance, investments through the aforementioned funds and the scale of the visitor economy are not factors considered in assessing bids for funding coastal defences. It is contradictory to invest money in levelling up an area, and then no invest in protecting the new investment from coastal erosion and flooring. 

The delivery of education and training in rural areas also needs to overcome the barrier of provision within more sparsely populated areas. LGA’s recent analysis of the employment and skills landscape also revealed that not everyone experiences the same opportunity reflected in jobs, skills and training options – stark inequalities are prevalent in both people and places. 

Our research identified several themes that underpin councils’ ability to support greater inclusion across their employment and skills programmes. The LGA’s coastal special interest group has also identified a challenge with the timing of the funding for skills training, which is currently aligned with the academic year. This conflicts with the peak of the tourism season, making it challenging or impossible for hospitality and tourism workers to participate effectively in training opportunities. Making provision for these sectors to receive their skills training funding between October to March would enable them to boost their training and development offer, build career paths, and become more attractive to people seeking work. 

The recent reforms for Destination Management Organisations (DMOs), including repurposing and renaming them as Local Visitor Economy Partnerships (LVEPs) has the potential to give a much stronger focus on data and management of places as a destination, creating one stop centres of expertise for councils as they make decisions that will affect their place as a destination. While an extremely welcome and positive step, LVEPs are not yet fully embedded and there is only one Destination Development Partnership being piloted. The Department for Digital, Culture, Media and Sport will need to work alongside VisitEngland to brief councils on this new expert resource and build them into the decision-making process. LVEPs themselves will need continued support in terms of funding and training to help them move into this new strategic space. 

The LGA has advocated for a tourist levy as part of its work on ‘Rethinking local’ - returning money raised from tourists to the areas that incur the expenditure for supporting them. Tourism is a significant contributor to the UK Exchequer. Revenues are derived directly from tourist expenditure via taxes such as Air Passenger Duty and VAT, and indirectly from the effects of tourist expenditure on taxes such as corporation tax and income tax. However, these taxes are all collected centrally and the local area supporting the tourists does not receive any benefit from them, leaving local taxpayers shouldering the extra costs. 

While reducing VAT on services and accommodation may benefit individual businesses, the destination as a whole will not benefit from this; meaning that although the visitor may enjoy their accommodation, they would be more likely to return if additional investment had been made in the wider destination. Councils are responsible for maintaining the roads, beaches and waste collection, which all have higher demands placed on them by visitors, but receives no direct contribution from the visitor to cover these extra costs. A tourist levy could solve this problem, enabling destinations to be managed effectively and with the funding ring-fenced for activities that boost and strengthen the visitor economy, including extending the season. 

The idea of a local tourist levy in the UK has recently risen in prominence – Bath, Liverpool, Edinburgh, Birmingham and London have all raised the prospect of introducing one. With numerous cities across the world having a charge on tourist visitors, there are plenty of examples of how a tourist levy works in practice. However, it also clear that not every area will benefit from a levy, and any introduction should be a decision by the local council rather than a blanket requirement of every tourist destination.

The following are the key considerations for local and national policymakers when designing a tourist levy. They are based on discussions with policymakers and a literature review. The broad themes could equally be applied to the introduction of any new local levy:

• The design of a tourist levy - There are several options for tourist levy design. For example, hotel occupancy could be charged, but the charge itself could be a flat fee, a percentage fee, per person, per room, or several other variations.
• The economics of a tourist levy - Introducing a levy increases the price of a holiday. Price changes can affect the spending behaviour of a tourist, but the extent and magnitude of these behavioural changes are unknown and depend on factors like the size of the levy.
• Practical implementation of a tourist levy - A tourist levy would ideally need primary legislation to be introduced. But there are other options, such as a voluntary scheme or using Business Improvement Districts as a tool.
• How much would be raised by a tourist levy for local areas - The type of occupancy charge can make a big difference to revenues.

The LGA has asked for faster progress on the registration and regulation of short term lets, and implementing provisions cross-government. We therefore welcome the announcement on Monday 19 February that the government is proceeding with both schemes. It will be vital that both the planning use class changes and the registration scheme continue to be developed in tandem, as neither will be effective without the other mechanism.

We support the introduction of a new use class for short term lets, an effective and powerful tool that recognises the importance of effective management of short term lets to maximise the positive impact on communities and mitigate any pressures they may cause. Introducing a use class tool is also a straightforward and easily communicated requirement to owners of short term lets, which makes it more attractive than more complex pieces of regulation that could be applied.

We also support the introduction of an opt-in registration scheme for local authorities with the framework set nationally, and a review point to determine whether to expand the scheme to mandatory. This reflects that this is not a priority issue in every council area and that implementing it would introduce a financial and resource burden on those areas where short term lets are not a significant part of the housing or accommodation supply.

We also believe that there should be a review point which includes consideration of whether a licensing scheme would be more appropriate, given that the registration scheme will introduce no new regulatory powers to take action against ‘bad actors’ in the sector.

However, we recognise there may be a case for improved and comprehensive data at the national level. Were this to be adopted, appropriate funding and resources would need to be provided to those local authorities where the registration scheme would not have sufficient income to be self-funding.