Welcome to a new episode of Richardson’s Rubicon hosted by me, John Richardson. In this episode, I dive into the economic principle of price elasticity of demand (PED) and its potential implications for the tourist sector, focusing especially on the controversial topic of visitor levies, or tourist taxes.

Feel free to discuss here: https://richardsonsrubicon.com/community/main-category-episode-topics/will-a-5-visitor-levy-hurt-scotlands-tourist-economy-an-analysis/

I’m excited (and depressed lol) to delve into the nuances of how economic theories, specifically price elasticity of demand (PED), intersect with real-world applications in the tourism sector through the lens of visitor levies. In this discussion, my primary focus will be on examining the impact of these levies on both serviced and non-serviced accommodations, the potential economic fallout, and why a flat fee might be a more palatable solution compared to a percentage-based levy.

I performed this analysis using the same figures the council say they used to determine projected revenue from the proposed Visitor Levy. At the start of the public consultation the language was mentioning no exemptions and a rate of 5%. Toward the end of the consultation, that language had softened.

More details on this analysis can be found on the campaign site, I will also note that all of this was sent April 7th 2025 to Jenni Minto MSP, John Swinney MSP and Kate Forbes MSP, as well as all councillors. None of the MSP’s have acknowledged this, a couple of councillors we know to be against the levy thanked me for the information, the rest have been utterly silent. https://argyllandbutevisitorlevy.com/2027-forecast/

Understanding the Drift in Accommodation Preferences

It is strikingly clear to me, that there is a noticeable shift among tourists from serviced accommodations, such as hotels and bed and breakfasts, to non-serviced options like self-catering rentals and campgrounds. From 2022 to 2023, non-serviced accommodations have seen visitor days increase by nearly 10%, visitor numbers by over 18%, and economic impact by about 4%.

However, serviced accommodations aren’t faring as well. Despite a curious 12% increase in visitor numbers, economic impact and direct employment both dropped by about 6%. This trend suggests that economic pressures are nudging tourists toward less costly options, opting for budget-friendly stays over the luxury and convenience of serviced lodging.

The Price Elasticity of Demand: Unveiling PED

The core economic concept we are scrutinising here is the price elasticity of demand (PED), which measures how sensitive the quantity demanded of a good is to a change in price. Typically, with luxury goods such as holiday accommodations, demand decreases sharply with price hikes, reflective of high elasticity. In discussing the potential implementation of a visitor levy, I observed that councils might overlook the substantial repercussions this could have on the sector. By applying PED to forecast trends, I projected disheartening results, especially when considering a proposed visitor levy of 5%. I also wonder where the due diligence was while constructing this flawed legislation. 

Economic Impact of a Percentage-Based Visitor Levy

One of the more glaring outcomes of this analysis reveals that a 5% visitor levy could lead to a staggering decrease in visitor days by 12% and a whopping 14% drop in direct employment within serviced accommodations post-implementation. A rough estimate suggests that the resulting economic impact could strip £51 million from the overall tourism economy, eclipsing the £9 million revenue the council hoped to rake in through the levy. Such statistics underscore the need for thorough deliberation before applying percentage-based taxes, which could inadvertently stifle one of the region’s key economic sectors. Why was this (PED) not included in detail within the Public Consultations?

Exploring the Flat Fee Alternative

In contrast to the percentage model, a flat fee per night might offer a more balanced solution with less adverse economic implications. Simulating scenarios with a £1 flat fee indicated a far less destabilizing drop in demand and employment compared to the percentage levy. While not entirely without impact—it could still lead to reduced economic engagement—this model offers a more predictable and equitable way to manage visitor contributions to tourism sustainability.

The Broader Economic Landscape

Additionally, these economic forecasts don’t exist in a bubble. External factors like national insurance hikes, economic stagnation, and policy changes such as electronic travel authorisation could exacerbate or mitigate these outcomes. Another pressing concern is the erratic nature of data collection, evidenced by conflicting figures from different data bodies, complicating accurate economic forecasting.  There should be one source of the truth. I also wonder what value Visit Scotland bring when they no longer have the Quality Assurance (star rating) program, and their accommodation figures don’t seem to be used by local councils. 

Conclusion: A Call for Responsible Policymaking

Ultimately, while the visitor levy aims to bolster council revenues, it’s crucial to balance this goal with the tangible impact on tourism economics. As an advocate for thoughtful policy-making and a retired Governance professional, I see a duty to analyse these measures comprehensively. Encouraging councils to consider the PED implications and evaluate alternative models like a flat rate fee is vital, although I must say this should have been properly considered at the legislative stage. It’s absolutely appalling, and shoddy, that this legislation was approved.

Let’s ensure that tourism blossoms while maintaining a fair economic ecosystem, a delicate balance that fosters sustainability and growth in equal measure.

Thank you for joining me in this deep dive.