Supporting rural tourism in England

English Tourism Week ran from 15-24 March this year and celebrated the tourism industry, showcasing its importance in England. Yet, with recent announcements, those involved in tourism may not feel like their contribution to the rural economy is being recognised, let alone valued and celebrated. The Covid-19 pandemic left scars on the sector, and in the years since, households have changed spending habits, and businesses are facing significant inflationary rises affecting all aspects of their enterprise. At the same time, tourism, particularly the short-term letting sector, is being blamed for the housing crisis.

In the spring budget, Chancellor Jeremy Hunt announced that the government plans to abolish the Furnished Holiday Lets (FHL) tax regime. The FHL regime is far from being a tax loophole - it is a legitimate support for businesses, which are often small. To abolish the scheme would be a mistake. The government is misguided in thinking that private landlords are leaving the sector to make the most of a more favourable tax regime – the CLA’s English and Welsh housing surveys showed that landlords were leaving the private rented sector (PRS) because of new Minimum Energy Efficiency Standards and rental reform (including removal of section 21). Not a single respondent said they were leaving because the FHL tax regime was more favourable. Our surveys did show that if landlords were leaving the PRS, they were either selling up or changing the use into holiday lets. Thus the solution is to address poor policy decisions in the PRS, and to increase supply of new homes, not target an industry that is a big economic contributor.

The government is likely to consult on changes to the FHL scheme, and the mechanism to implement those changes may appear in the Finance Bill, which is to be introduced to Parliament in a few weeks’ time. Unexpected pushback from MPs, including those in tourism hotspots, has put a cat among the pigeons and the abolition of FHL appearing in the bill is now uncertain. We will update members as we know more.

Meanwhile, the CLA is engaging with the government on any changes to the FHL scheme, as are others in the industry. We encourage members to complete a survey organised by the Professional Association of Self-Caterers (PASC) about the impact of removing the scheme.

The CLA is also hosting a virtual roundtable to collect case studies that can quantify the impact of changes to the scheme on the rural economy.

Shortly before the FHL announcement in the budget, the government committed to introducing a new class for short-term lets in England. A new use class means there could be restrictions at a national or local level, to prevent properties being moved into the short-term/holiday let use class from the private rented sector.

Available quality accommodation is important to satisfy the demand for tourism in the UK. Visit Britain predicts that intention of consumers to take a domestic overnight trip in the next 12 months is strong, and domestic overnight stays were worth £28bn in England in 2022. If members are discouraged from converting into holiday letting, this removes a prosperous diversification opportunity, and the contributions these businesses make to local rural economies.

Quality is perceived as an issue in the industry, with amateur operators using platforms such as AirBnB not meeting minimum safety standards. In both England and Wales, there are proposals to introduce licensing or registration schemes for short-term let operators. The primary aim of these schemes is to improve compliance with safety standards, but they could enable better data collection. The risk is that these schemes are poorly implemented, create added bureaucracy and do not provide good data which could be used for better policy development.

Contrary to proposals which would stifle its growth, the importance of tourism to the UK economy, in particular the rural economy, cannot be overstated. Rural tourism accounts for 70-80% of all domestic UK tourism and adds £14.56bn to England and Wales’ Gross Value Added. Tourism represents a large portion of our members’ business interests; our 2020 member survey showed that 39% of members had a tourism-focused business.

The change to agricultural subsidies post-Brexit means that farming businesses in England will lose a total of £1.87bn income a year from 2028. It is predicted that, on average, around 50% of this loss will be recouped from environmental schemes. However, the other 50%, approximately £935m, needs to be made up through diversification opportunities, such as tourism. In Wales, assuming the Welsh Government moves away from direct payments altogether, the loss in Basic Payment Scheme payments will be £238m a year by 2028.

There is a need to reinvigorate the sector and enable it to weather difficulties. The CLA has devised the following plan for rural tourism:

1. Promote the value of tourism for projects to be funded by the Rural England Prosperity Fund.
2. Ensure rural representation and rural proofing of the new Local Visitor Economy Partnerships and Destination Development Partnerships.
3. Extend permitted development rights for temporary uses of land.
4. Introduce a permanent VAT reduction to 12.5% for tourism accommodation and visitor attractions with a turnover of less than £1m.
5. Restrictions on personal use to qualify for the FHL regime as an alternative to abolition.
6. Re-establish the Rural Tourism Partnership.
7. Introduce a single business unit to simplify tax administration for diversified businesses.