A new survey published ahead of the Scottish Budget on 4 December has found that tourism and hospitality businesses are on a financial knife-edge and there is a significant lack of trust in the Scottish Government to deliver for the sector.
85% of respondents to the research commissioned by The Scottish Tourism Alliance (STA), the overarching representative body for Scotland’s tourism and hospitality industry, said that they have no or low trust in the Scottish Government to deliver funding for the tourism and hospitality sector over the next 12 months, with well over half (58%) having no trust at all.
Given a choice of 18 priority actions that the Scottish Government could take to create the best environment to do business, almost half (47%) stated ‘greater recognition of tourism as an economic driver’ in their top 3. This was followed by reviewing the Short Terms Lets (STLs) Licensing Scheme (34%) and reducing the regulatory burden on business (34%).
Partnering with leading research company 56 Degree Insight, more than 300 tourism and hospitality businesses took part in the recent survey. It was conducted in October before the UK Government’s Autumn Budget announcement, which will have been another financial blow to the sector.
Scotland’s tourism and hospitality sector has had a standout year for international visitors this summer, but when it comes to the bottom line the research highlights that businesses are still struggling to make a profit and invest in the quality of their visitor offer due to ongoing rising cost pressures and a continued drop in domestic visitors.
While international visitors have risen by 27% compared to 2023, respondents have experienced a 15% drop in domestic visitors.
This mirrors the latest findings in 56 Degree Insight’s Scottish Tourism Index for October. Surveying over 1,000 residents in Scotland, it reports 43% of us are taking fewer breaks in Scotland than in 2023, with those who do take domestic breaks staying for shorter periods and trying to keep their costs down.
Greatly concerning, despite a 21% rise in net turnover and positive international visitor numbers, profitability is down 1%.
Almost half of tourism and hospitality businesses (45%) have said they have either no or just 1-3 months’ worth of cash reserves – a 6% drop compared to last year’s STA survey. Worryingly, 78% of the hospitality operators who responded report having a financial safety net of three months or less.
When it comes to the cost of doing business, over three-quarters report higher energy costs (77%), while 85% are experiencing higher supplier expenses. Well over half (58%) are already spending more on staff costs, which will now inevitably rise with the latest National Insurance announcement, and around half said that the taxation burden was greater (49%).
Commenting on the results, Marc Crothall MBE, STA Chief Executive said:
“The lack of trust in the Scottish Government to deliver for the sector over the next 12 months sends a powerful message to ministers that they must use the upcoming Budget to demonstrate their commitment to protecting tourism and hospitality businesses, restoring their confidence, and investing in the quality of our visitor product and people.
“Despite repeatedly delivering for the Scottish economy, outperforming the rest of the UK when it comes to attracting international visitors, the majority of business owners who have responded say that they continue to feel overlooked and undervalued by the Scottish Government.
“I know firsthand that both the First Minister and the Cabinet Secretary for Economy and Gaelic value the sector’s importance, but that’s not coming through to most businesses working on the ground, who have suffered as a result of policy making decisions and financial challenges over recent years. It is positive action, not just words that is needed.
“Our businesses have clearly spoken and recognition of tourism and hospitality’s crucial role as an economic driver is their main priority from the Scottish Government, along with cutting the regulatory burden and prioritising a review of the catastrophic STLs Scheme.
“Passing on the 40% business rates relief being afforded to our hospitality counterparts in England by the UK Government, at the very minimum, and introducing a permanently lower rate that is fair and proportionate would go some way to restoring the sector’s confidence in government.
“The survey reveals many of the sector’s businesses are on a financial knife-edge. In the face of rising costs, tourism and hospitality businesses cannot afford to raise customer prices, despite continuing to experience rising costs in the form of inflationary pressures and the forthcoming significant increase in National Insurance employer contributions, along with ongoing global uncertainty.
“Scotland is starting to get a reputation for being overpriced for the quality of experience offered compared to other competing destinations. With the visitor levy on the horizon in Edinburgh and other parts of Scotland, there is a risk we will reach a tipping point where we are too expensive, even for the high-spending American market.
“Without government support, our businesses will struggle to make enough money to invest in their team, the quality of their product and advance in their journey to becoming net zero. This is in turn constricting our ability to meet the ambitions of our national tourism strategy, Scotland Outlook 2030, and overall having a detrimental impact in our ability to compete on price, improve quality of experience and offer the value for money today’s customers expect.
“After several challenging years for the sector, behind the scenes we are also seeing an increasing rise of mental health issues amongst business owners in the sector, as they struggle to cope with rising business costs and challenges.
“The Short-Term Lets Scheme and ongoing ferry disruptions have both taken their toll on the sector, while accommodation providers are now faced with having to put in place new systems for collecting a visitor levy on behalf of cash strapped local authorities who elect to introduce the levy.
“As we approach the half-way point of Scotland Outlook 2030 next March, it is crucial that the Scottish Government demonstrates its commitment to the sector if we are to continue to be a serious international competitor and economic powerhouse.”
Jim Eccleston, Managing Partner of 56 Degree Insight, commented on the results:
“It is encouraging to see the increases in international tourism that were experienced by many tourism and hospitality operators over the summer period, with almost half reporting significant increases in business from overseas.
“But of course, the domestic tourism markets represent the ‘bread and butter’ for most tourism and hospitality businesses in Scotland, both in terms of volumes and shoulder season visits. Unfortunately, many of them have suffered continued declines in domestic tourism during 2024, continuing the trends of the last couple of years. Whilst just under half have received similar levels of domestic business to last year, 35% have suffered significant declines.
“The reporting of domestic decline is backed up in the latest survey findings from our Scottish Tourism Index, which reported a continued decline in home holidays by people living in Scotland, largely at the expense of trips to Europe and further afield. However, there is some room for cautious optimism for 2025, with more Scots intending to take domestic holidays and breaks than has been the case this past year.”
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