To save tourism Scotland should spend differently

A budget is approach which means that all sorts of industry sectors are seeking to persuade us that they are over-taxed and that it is in our best interests to give them tax cuts. On the whole, these can be taken with a pinch of salt, but one sector in particular has reason to complain – tourism.

The Herald today reports that the tourism sector is suffering from three distinct negative trends at the same time. First, its supply costs have ballooned since the cost of living crisis like everyone else's, but this is a particularly big cost input for tourism in a price-sensitive market.

That is the second factor; tourism is an industry sector which is particularly susceptible to consumer sentiment. Tourism is voluntary expenditure and is often expensive so if household budgets are tight, spend on tourism and hospitality is a likely casualty.

And then there is the new factor; the Labour Government's increase in National Insurance Contributions. This inexplicable move rejected forms of taxation on businesses that would reflect ability to pay and instead raised a tax which punishes businesses with high levels of expenditure on jobs. Tourism is a jobs-heavy sector.

This triumvirate of factors – supply cost pressures, demand reduction pressures and employment tax pressures – land on a sector which already has low profit margins. Yes, some tourism (particularly in cities) can be very profitable indeed, but much of Scotland's tourism infrastructure is small and independently owned.

In some industry sectors you would simply have to accept this as current market conditions, but tourism and hospitality have an important function in Scotland where it is one of the key providers of employment in rural areas. The downwards spiral communities can face if they lose key tourism businesses is concerning.

There are no easy solutions to this. If consumer sentiment could be improved through immediate government policy or if there was scope for tax cutting in the budget then there might be short term steps that could be taken, but at the moment these are both basically the Holly Grail of UK politics,

The first and by far the most obvious step would be to reverse the National Insurance contribution rise. Shifting business taxes towards the most profitable sectors would greatly aid tourism. Unfortunately the fact that this was done almost wholly to insulate the financial sector in the City of London from the threat of tax rises means it seems utterly improbable that the Government will reverse position at this budget.

Worse, this will be another substantial tax-raising budget and so consumer sentiment will not be helped and demand is unlikely to be stimulated. The only partially good news is that inflation is returning back to more familiar levels and so the rate at which costs are increasing will have slowed.

Tourism in Scotland has faced many of these problems for years and there has been continuous attrition of infrastructure in some places. Scotland cannot afford a crisis in its tourism sector but has few short-term options to hand. Which means it makes sense to take a long term approach

One of the ultimate goals if we want a sustainable tourism sector is to increase demand year-round, and that means we must build up the domestic tourism market. If a greater 'habit of tourism' can be developed here then it can go a long way in supporting this industry, but that is a difficult ask in a tight economy.

The win-win answer is a longer term shift in spending patterns. It is a political orthodoxy across almost all political parties that the purpose of politics is to enable consumers to consume more. This is measured in terms of retail sales – how much we have bought. But because the vast majority of the retail Scotland consumes is based on overseas manufacture and generally overseas ownership, much of the economic impact of that spending is exported.

If more of that money is spent in the service sector, the spending profile is different, precisely for the factors raised above – more local ownership, higher proportion of spend on employment and greater volumes of supply chains being domestic.

Politics has shied away from seeking to influence personal spending patterns other than by increasing volume. This is a mistake. There are both economic and wellbeing reason for shifting spending away from disposable consumer goods and towards participating in activities like hospitality and tourism.

That is why Common Weal has proposed a national industrial development strategy for the tourism industry based on increasing capacity through more domestic trade as spending profiles are changed. You can find out more in Sorted.