03How different cities should think about their visitor economy

The figures in the previous section are relevant to ongoing policy discussions regarding the visitor economy. These tend to fall into three main themes, all raised in the series of roundtables conducted for this research: the role of the visitor economy in the wider economy; the impact it has on accommodation; and the role of tourism taxes or levies to help fund the services that visitors use. This section considers these three areas.

The visitor economy and local economic development

Using the visitor economy as a way to create economic growth has long been promoted both nationally and locally. At a national level, ‘tourism’ was mentioned a number of times in the 2017 Industrial Strategy White Paper, both as a strategy to raise broad-based productivity and encourage place-based investment, as well as having a specific sector deal.³¹

At the local level, visitor or tourism strategies are common.³² For instance, as part of their mayoral campaigns, both Kim McGuinness³³ (with a tourism drive around Tyneside musicians) and Claire Ward³⁴ (aiming to highlight the ‘fantastic gems’ of the East Midlands) explicitly placed these strategies on an economic footing.

The economic performance of a place is determined by the performance of its ‘exporting sectors’ which bring money into the economy by selling their goods and services to regional, national or international markets.³⁵ This puts money into people’s pockets, which they spend in local services businesses such as shops, bars and restaurants.

The visitor economy straddles both. It brings money into an economy by selling goods and experiences to people who don’t live in that area. At the national level, the ONS estimated in 2019 the GVA of the tourism sector was £74 billion, or 3.6 per cent of the economy.³⁶ The findings in Section 1 give a sense of how this is distributed across UK urban economies.

As shown above, this spending mainly happens in hospitality, retail, and leisure services, which employ a lot of people but are inherently lower productivity activities.³⁷ This means that the impact on a local economy will primarily through job creation rather than wage increases.

The major challenge for struggling economies is the poor productivity of the export base. If the forthcoming national Industrial Strategy and Local Growth Plans are to change a place’s performance, they will need to improve the productivity of their exporting sectors. So, while a visitor economy is undoubtedly a good asset for any city to have, from the perspective of improving productivity it is instructive to separate it out from the rest of the local export economy. Figure 12 plots the share of spend from overnight visitors (how important a visitor economy is within a place, set out in Fact 4) against average weekly workplace earnings, a proxy for the strength of the local economy.

Dividing cities into four groups based on Figure 12 helps build a framework of how the visitor economy and its role in local economic development should be thought of in each place:

• Top right: These are higher wage cities with a strong visitor offer. Places like Edinburgh, Cambridge, and London benefit both from a strong visitor economy and a stronger economy more broadly – they have the best of both worlds, being places of both work and leisure. These cities should look to facilitate the growth of both elements, particularly those destinations cities outside the top ten (e.g., Southampton, Belfast).
• Bottom right: Strong economies but fewer visitors. In these cities (such as the destination city of Dundee, or the port city of Portsmouth), investing in a visitor economy could be a way of adding another dimension to the local economy. But these places should consider two things. The first is whether they realistically have a visitor offer. The second is what is the offer of larger neighbouring areas – Slough and Crawley, for example, have London nearby.
• Top left: Visitor spend is high in part because the rest of the economy is relatively weak. Here the denominator matters: the city is more reliant on visitor spending because locals do not have the pounds in their pockets to spend on the city’s high street. Blackpool and York are case studies here, but other cities such as Plymouth, Newcastle, and Brighton also fall into this category. Having a visitor economy is a good asset for these places, but it cannot paper over other shortcomings in the local export economy. Their main challenge is not to double down on the former but to tackle the latter. Blackpool’s route to prosperity is unlikely to be increasing the role of its visitor economy.
• Bottom left: Places with both few visitors and a weak local export base. With limited scope for intervention and competing needs, these places should prioritise economic interventions that increase the spending power of locals (through raising wages by attracting productive businesses, for example). These shortcomings in the wider economy are likely a constraint on the visitor economy itself, and the lack of local spend influences the visitor ‘offer’ a place has.

There is a further benefit that was raised in the roundtables and is discussed more generally – the impact that tourism has on the image of a city. For example, one of the aims of Southampton’s Destination Management Plan is to ‘transform people’s perceptions of our culturally diverse and vibrant city’.³⁸ This is very hard to quantify but has been a reported consequence of Eurovision being hosted in Liverpool,³⁹ and has been suggested as a driver of urban regeneration in European cities such as Lille and Bilbao.⁴⁰

The impact of accommodation on housing supply in destination cities could be better understood

Destination cities that enjoy healthy visitor economies will need to provide the infrastructure needed to support large visitor numbers. Due to longer term supply constraints in the UK’s housing market,⁴¹ concerns about visitor accommodation adding further scarcity to the supply of homes for residents in some cities were raised at roundtables and in the wider media too.⁴²

Visitor accommodation seems generally responsive to visitor demand within cities. Destination cities with high shares of in-person spend from overnight visitors tend to have a larger per capita supply of visitor accommodation. This is the case for both hotel accommodation and short-term lets (Figure 13).

The provision of both types of accommodation seems to be responsive to demand for visitors by these measures. However, regarding the supply of short-term lets – which necessarily overlaps with local housing infrastructure – it is difficult to evaluate its impact on local dwelling supply in visitor destinations because they remain unregulated in most of England.⁴³ A recent UK study found little to no impact of Airbnb let activity on rental and housing affordability in certain locations across the country – but more work needs to be done in the UK to paint a complete picture.⁴⁴

Introducing mandatory short-term let registration to provide reliable sector-wide data would be one step towards helping destination cities understand their impact on local housing supply. This scheme was proposed by DCMS in February.

As with any other sector, the visitor economy requires infrastructure investment to succeed. And so, given any general concerns about housing pressures, the response should be to increase the provision of housing to benefit both locals and visitors alike. Through national planning reform – as called for by Centre for Cities⁴⁵ – increasing the rate at which new homes and accommodation of all types are built is how policy makers can ensure that any impact is minimised. Ultimately, local housing and visitor accommodation will only act as substitutes when new infrastructure for both cannot be built.

Tourism taxes are a potential tool in destination cities

Successful visitor destinations face added pressures to their cities beyond just accommodation provision. Following roundtable discussions with local policy makers, tourism taxes were raised as a possible intervention that could help places get the most out of their visitor economies.

Tourism taxes represent an opportunity to take some of the economic benefit that the visitor economy generates and redirect it towards improving the infrastructure that the industry requires. If implemented correctly, revenue from these taxes can be used to grow a place’s visitor economy by providing local authorities with the funds needed to provide the additional services required: keeping streets clean, supporting the development of new accommodation, and attracting large-scale events to the area are just some examples.

However, the concentration of the UK’s visitor economy (Fact 1) suggests tourism taxes’ ability to generate meaningful revenue will be restricted to a select few cities. Previous research from Centre for Cities found that a £2-per night occupancy tax on domestic visitors would bring in £216 million a year. But this would fall unevenly: it would raise less than £10 per resident annually in 48 of the 62 cities analysed.⁴⁶ This further assumes no change in visitor behaviour – in reality, a levy in non-destination city could actively deter visits.

The way the tax is implemented also matters. Manchester and Liverpool raise funds locally through the Accommodation Business Improvement District that is levied on its members (hotels) and passed on to overnight visitors. While this ‘backdoor’ route to a tourism tax in the absence of national legislation in England allows these cities to raise revenues from visitors, it is limited in scope, focused only on city centres and on specific accommodation providers.

A better approach would be to allow local authorities the power to implement a tourism tax directly. This would require a change to national legislation as has been the case in Scotland and (soon-to-be) Wales. This would give local authorities direct control over revenue generated and would expand the scope of the tax to the whole authority or city region. With this wider scope though, the rate at which the levy was set would have to be considered carefully – a rate out of proportion to the local visitor economy could impact visitor numbers, and introducing one at all outside of destination cities would be hard to justify.