Councillors in Edinburgh have voted for a "bed tax" on tourists and visitors to the city in a bid to raise up to £10m a year to help fund its festivals, venues and conference centres.
Edinburgh old town and city centre at night, with the castle and the Balmoral hotel clock tower illuminated. It will cost more to stay overnight in the city if a proposed new bed tax is introduced. Photograph: Murdo Macleod for the Guardian
The measure, which follows years of lobbying by council leaders, is likely to need approval by the Scottish parliament but would involve a levy of between £1 and £2 for every night's stay in the city on the millions of visitors each year.
Similar taxes have been imposed in New York, Venice and Vancouver, but Edinburgh would be the first city in the UK to apply such a levy.
It was immediately denounced by the city's hoteliers as a discriminatory and potentially unworkable measure, which could damage tourism.
Colin Paton of the Edinburgh Hoteliers' Association, which represents the city's largest hotels, said: "It discriminates against the hotel industry and does not respect the existing tax structures of the UK. We already pay a profit-related property tax, then we've got corporation tax and income tax, so this seems very unfair."
Senior councillors, including Steve Cardownie, the Scottish National party leader in Edinburgh and deputy leader of the council's ruling coalition, have argued strongly for the measure for nearly 15 years, claiming that the hospitality industry benefits heavily from public subsidies for its festivals, business conference venues and tourism attractions.
A report in May on the impact of the Edinburgh festivals estimated they generated £245m a year for the city economy and employed more than 5,200 people. Excluding ticket prices, nearly 40% of their spending went on hotels and accommodation.
The city spent nearly £3.3m in 2009-10 on grants and subsidies for the festivals, which run year-round, but is now having to cut services heavily; in February it said it had to save £90m over three years.
Council officials have been asked to investigate how the bed tax can be legally introduced and whether it would need parliamentary approval, and are due to report back to councillors on the policy committee next month.
If it can only be introduced with Holyrood's approval, the proposal will put the Scottish government in a political quandary. It has introduced plans for a "Tesco tax" on large supermarkets, but appearing to tax small hotels and B&Bs might be politically unpalatable.
If city officials say the measure is too legally complex or is likely to be rejected by the Scottish government, the council will instead try to introduce a voluntary levy.
Steve Burgess, the Scottish Green party councillor who proposed the measure, said he believed visitors and tourists to the city would willingly accept a "small" levy on each night's stay if they knew it funded the attractions and festivals they came to see.
"It isn't likely to put people off coming to Edinburgh," he said. "The council is in very tight financial circumstances, resources have been squeezed, and the council puts a lot of resource into providing visitor attractions, festivals and so on. "This would be a way that visitors can contribute back towards that."
However, the council's proposal does not affect the restaurants, pubs, cafes and nightclubs which also benefit from the city's global reputation as a tourism venue.
Paton said the hotels already contributed heavily to the city's economy and the largest hotels had already offered to accept a 0.5% or 1% levy on their rates which would be put directly into Marketing Edinburgh, the quango which promotes tourism and business conferences.
The council's proposal, however, would hit all hotels, regardless of size. Their margins were often very tight, he said. It was unclear whether it was legal to introduce such a "bed tax", how it would be taxed, and whether it would include VAT.
"I think it's a very myopic view because it fails to recognise any of the additional economic value which comes from our existence. It implies we're not giving anything back but we create employment, we create tax inputs and outputs."