Breakfasts and holidays

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Economics in the real world is hard, and one of the things that economists often do is to simplify things. As an exercise in explaining a theory, it’s perfectly fine; but in the hands of politicians who have understood the theory but not the extent to which it has been made simple, it’s potentially disastrous. For an economic purist, humanity is an economic animal and all decisions should rationally be taken by analysing the best economic outcome for the individual. To use an extreme example, in deciding whether to have cornflakes or toast for breakfast, I should cost all the ingredients, all the costs involved in purchasing, transporting and preparing them, and the opportunity cost of the time it takes me to prepare and eat it. “Breakfast means breakfast”, to coin a phrase, and the two options are considered entirely fungible. Preferring the taste or the texture of one over the other is to use irrational factors in the decision-making process. Real life doesn’t work that way, of course (which is not to deny the fact that there are far too many people in the world for whom the decision to eat breakfast or not is very much an economic one). And fungibility is a difficult concept.

A better and more current example of this sort of over-simplistic thinking is the Tory reaction last week to the idea of a tourist tax or levy in Wales. Imposing such a tax is, in their view, a disastrous policy which will lead to the overnight complete collapse of the tourist industry in Wales, as visitors avoid the tax by going elsewhere. Even in their own terms, it’s wrong; if the tax were indeed to have that effect, it wouldn’t be the fact of the tax that did the damage, it would be the impact of that tax on the relative prices of a visit to Wales and a visit to another part of the UK. It would be higher prices that people would be avoiding, not the tax per se. Nevertheless, from their hopelessly over-simplistic perspective, “holiday means holiday”, and people will go to the railway museum in York, or the beach in Bournemouth, instead of visiting Zip World in Gwynedd. But real life isn’t like that. People really don’t decide between a museum, a beach, and a thrill ride on the basis of price. ‘Irrational’ factors such as personal preference play a major role. And it isn’t only about deciding between one type of holiday or another – in deciding where (and whether) to go on holiday, people also make choices about whether to spend the money on other things; competition for the spend on a holiday in Gwynedd isn’t limited to the range of holidays available elsewhere. All of these factors are ignored in search of a doom-laden headline from Tories who are basically averse to all taxes in all circumstances but unwilling to be honest about it.

Whether the proposed levy will impact the number of visitors coming to Wales is an open question to which no-one really knows the answer (and the fact that no-one knows the answer is a much better ground for examining the proposals very carefully). The extent of any impact will also depend on the amount of the levy; there’s a huge difference on the overall price of a holiday between a levy of, say, £1 per night and one of £100 per night. To further complicate things, any imminent introduction of such a levy would be coming at a time when the UK government is deliberately setting out to reduce people’s ability to spend as well as their living standards. Sorting out which change actually caused any reduction in visitor numbers would be far from straightforward. The Tories did get one point almost half right though. Some places have indeed used a levy or tax in an attempt to reduce the number of tourists. That doesn’t necessarily mean, as the Tories claim, that such will always be the effect, but there is no doubt that it is one potential effect. Whether that’s a good thing or a bad thing is another question – the Tories assume the latter, but for people living in areas with high numbers of tourists, ‘over-tourism’ is a real concern. I hope, though, that that forms no part of the Welsh government’s thinking in relation to the proposed levy, and that they genuinely are going to ensure that any revenue is used to reduce the impact of tourism on local services rather than fund other expenditure. Not because I dismiss the problems which over-tourism can cause, but because using pricing mechanisms to control numbers pushes even the cheapest holidays beyond the reach of even more people and makes holidays the preserve of a smaller number. I somehow doubt that that issue even crossed the Tories’ minds.