Will Edinburgh’s Visitor Levy help or hinder Scotland’s hotel performance?

Hotels in Scotland have been the “clear winners’ in a challenging hospitality landscape in 2024, outperforming other regions in the UK by reporting an 8.5% increase in RevPAR. Additionally, out of all the cities in Scotland, occupancy across Edinburgh ranged between 85% and 90% for most of the year. Now, Edinburgh is positioned to become the first UK city to implement the Visitor Levy from 1 October 2025. The council aims to introduce a 5% surcharge on overnight stays, capped at seven consecutive nights. As one of the most expensive cities in Scotland, Edinburgh's introduction of the levy raises questions about its potential impact on the city and whether Scotland's hotels can continue to outperform those in other regions for another year. Cristina Balekjian, director of UK Hospitality Analytics at CoStar, who previously forecasted that Scotland will have a more positive outlook in 2025, notes that “it is a bit difficult to judge what kind of impact the levy will have on the country,” adding that there are examples of cities around the world that have introduced a visitor levy and “have not seen a big impact on demand”. “People still tend to go to these destinations, for example places like Amsterdam have increased their taxes to control the number of tourists, but that hasn't deterred people from traveling to the city,” she says. She adds that Edinburgh tends to rank highly in people's travel itineraries, so it's hard to know if the levy would “negatively impact occupancies as such”. Similarly, Leon Thomspon, executive director of UKHospitality Scotland, believes that since Edinburgh is a very popular destination visitor numbers could continue to increase despite the levy. He says: “Visitor spend across the city has remained strong, and many hotels are continuing to invest in the city, either by buying up existing properties or opening new properties in order to take advantage of the growth market.” Thompson also thinks that the effect of the levy “remains to be seen” because the city relies on a lot of international visitors. “The general feeling is that for visitors who are quite used to paying levies elsewhere in Europe or around the world, the levy will not make much of a difference to them,” he adds. However, for the domestic market Thomspon feels that it is less certain as the market is quite soft at the moment, particularly around spend because of the economic situation in the UK and the cost of living crisis that consumers are facing. “So adding an additional 5% might put some visitors off, “ he says. Thompson also highlights that the country might see a bit of displacement too, whereby people will come to the city but perhaps spend less money in the city to recoup the levy money. The introduction of a visitor levy has been in talks for almost 10 years now with hotel associations such as the Edinburgh Hotels Association working very closely with the council on their plans. According to Thompson, a 5% levy is a level that can be managed. “Some councillors wanted to see that go higher, with two parties pushing for 7% and 8%, but keeping it at 5% probably feel kind of comfortable to hoteliers at the moment,” he says. The introduction of the levy means that hotel prices will increase because businesses have this additional tax that they need to put into their rates. With Edinburgh already being expensive compared with other parts of Scotland, Belajkin says that while people might still visit Edinburgh, budget conscious travellers might venture a little bit further out from the city center and the city boundaries. “Glasgow, for example, might be one of the cities that could benefit from this, because it has cheaper alternatives and traveling from Glasgow to Edinburgh is relatively easy. You can get on a train or even if you drive as it is not too long of a drive.” It is expected that the levy will generate between £43m and £50m annually, which would be reinvested into local infrastructure, housing and tourism-related initiatives.This in turn will have some impact on the pricing and overall competitiveness of hotels. Thompson explains that it is ultimately dependent on global economics and the willingness of people to travel and spend. In terms of the levy, he feels that while businesses might find 5% a “chunky figure", it is still within the “parameters of still being reasonable”. However, he says that this rate needs to be “under review to see if it's harming the visitor economy, is it helping or making it difficult for businesses to run”. “It is important to have these open conversations with the council going forward,” he adds. Thompson also stated that there is evidence which suggests that over the last few years people have been looking for accommodation outside of the city. He states that it's not only Glasgow that is seeing this trend but travellers are also opting to stay in East Lothian and West Lothian. “With the introduction of the levy in Edinburgh it might encourage other people to look outside the city for accommodation, where they can still get relatively easy access into Edinburgh, but also enjoy other parts of Scotland, close to the capital as well,” he adds. He also reveals that Edinburgh is not the only city that is looking to introduce a levy. On Thursday (30 January 205), Glasgow City Council approved a paper that went forward on consulting on the introduction of a levy. They have now moved to introducing a public consultation on also introducing a 5% levy in Glasgow. Thompson says: “Other council areas in Scotland are doing similar as well. There's quite a lot of movement in this area now that councils have the ability to introduce this charge. Many of them are actually at that point of consulting with local people and businesses in their area to establish whether or not this is something that will be desirable in those local authority areas as well.” So, while it is still uncertain how the levy might impact businesses in Scotland, Balekjian states that hotels will need to prepare well during this transition period, if they want to mitigate any kind of negative impact. She adds that hotels must understand how they're going to price their hotel rooms across the different channels, because although hotels will think about pricing a room on their own website, they also need to make sure they are not diluting their rates on OTAs. “Being well-prepared and ensuring everything is in place ahead of time is key. Having a solid revenue strategy is also essential to avoid losing out on rates, particularly when working with OTAs. Since these platforms require full-rate advertising and charge commissions, it's important to ensure that the net revenue you ultimately receive aligns with your goals,” she says. Additionally, Thompson urges hotels to make it as simple as possible for customers. Right now, the key priority is to make the process as simple as possible for guests and clearly communicate the details of the levy, including its introduction and potential uses. Evidence from other European destinations suggests that when funds raised from such levies are invested in city improvements, visitors tend to view the charge more positively. He says: “It’s all about delivering the right message with the right tone and ensuring the funds are used effectively to support businesses, strengthen the economy, and showcase tourism as a positive force.” Thompson concludes that realistically the crucial part of judging the impact of the levy will be to see whether it is used in the right way. “Hopefully, the levy money will continue to keep Edinburgh at the top of its game, attracting more visitors. If used in the right way, it can be used to leverage additional value for the visitors coming to the city.”