Economic Contribution of Tourism in the UK - Essay Example

The effect of tourism on the United Kingdoms economy Introduction Public and business organizations are much interested in the economic impacts at local, state and national levels. One frequently hears allegations that tourism supports a certain number of jobs in the area or event has made Y million dollars in income or sales in a community. Economic benefits of tourism are publicized for various reasons. Claims of economic importance of tourism make the industry be respected among the public officials, a business community and the general public. Often this translates to making of decisions or policies that favor the tourism industry. Support from the community is a very important element in tourism this it is an activity that entirely affects the community. Costs and benefits of tourism reach almost everyone in one way or another. Analysis of economic impact offers concrete estimates of the economic interdependencies and a better insight on the role and importance of tourism in a country’s economic development Tourism activities also entail economic costs, which involve government spending on infrastructure so as to improve services to tourists, direct costs incurred by tourism businesses, together with the cost of congestion and other related costs barred by individuals in the society. Even though the European and the UK economy have not been performing as compared to bother parts of the world since the end of global financial recession, the impact of tourism to the economy has relatively risen in the recent times. From the first instance, the question of the importance and effects of tourism to the economy seems as if it is straightforward to answer. Several researches have been carried out as GB Tourism survey, GB Day visit survey and the International Passenger survey to ascertain the impacts of tourism on a country’s economy. According to the World Travel and Tourism Council (WTTC), there has been a growth of economic importance of tourism to UK economy since 2012. Tourism industry comprises of 9% of the GDP and generates millions of job opportunities in the country. The industry performed better than other notable industries like retail, financial services and manufacturing. With such ability to create employment opportunities and resilience in demand, the significance of tourism as a tool for job creation and economic development is very clear since it contributed over 12% of all the jobs that were created in 2012. Reduction in punitive levels of taxes and an introduction of less restrictive visa regimes has also boosted the industry, therefore, contributing to broader level of development. Economic contribution of tourism Tourism has several impacts on the economy. Tourists contribute to profits, tax revenues, profits and income within a geographical area. In most cases, direct effects occur within the tourism related sectors i.e. restaurants, lodgings, amusements, retail trade and transportation. On the other hand, secondary effects have an impact in several sectors of the economy. Analysis on activities that have an economic impact usually focuses on changes in income, sales, and employment in an area arising from tourism activity. The following illustration shows a simple scenario on the impact of tourism to economic development of a given area. Let’s take an example; a given geographical area attracts an extra addition of 100 tourists, with each of them spending $100 daily. The new spending in that area is $10000 per day. If they are maintained for a period of 100 days, the place will earn a million dollars in sales. The spending of a million dollars would be distributed to restaurants, lodgings, and retail trade and amusement sectors depending on how each tourist spends the $100. Maybe 30% of the million dollars would immediately get out of the region to meet the costs incurred in purchasing the goods used by the tourists that are not locally produced in that area. The remainder of about $700,000 used in direct sales may yield an income of $350,000 within the tourism industry and support directly 20 tourism jobs. Tourism sector is income and labor intensive, which translates high proportion of sales into income and related jobs In return, tourism industry purchases goods and services from other enterprises in the area, and makes payment of $350,000 in income as salaries and wages to its employees that create a secondary economic effect within the region. When the multiplier effect of 2.0 is used, the $700,000 in direct sales results in $1.4 million, in sales, the income of $650,000 and 35 jobs. Tax effect can also be estimated in this spending by using the local tax rate to the suitable changes in income or sales. Instead of putting much focus on the spending f the visitors, impacts of construction or government activities associated with tourism can also be estimated. Nevertheless, there are other various types of economic impacts that are not usually during the assessment of economic impacts of tourism. For instance: Price changes- tourism in some cases can increase retail prices and housing costs in the area, mostly on a seasonal basis. Variations in property and other taxes- taxes to cover services offered locally may be lower or higher in the presence of activities related to tourism. In some instances, taxes collected indirectly or directly from tourists may result to decrease in local taxes for roads and schools. In some other instances, local people may be over taxed so as to cover additional service and infrastructure costs. The impacts of tourism on the costs and revenues of the local government are fully addressed through fiscal impact analysis. Economic dimension of environmental and social impacts- there are also economic effects of most environmental and social impacts that are ignored during economic impact analysis. These can be either positive or negative. For instance, congestion of traffic increases the costs of moving around for both the businesses and the households. Advanced amenities may act as a source of attraction to tourists and also encourage those who have retired and other form of businesses to relocate into the place. Changes in quantity and quality of goods and services- tourism may result to a wider collection of goods and services that are present in a specific geographical location (of either lower or higher quality than without tourism) Indirect, direct and induced effects of tourism Analysis of economic impact of tourism outlines flow of money from spending in tourism activities to businesses, government agencies then to: Other forms of businesses - which supply goods and services to tourist related business Households- which earn a living by working in tourism industry or other supporting industries, and The government - through several charges and taxes on tourists, households, and businesses Tourism is an essential economic activity in UK and other countries all over the world. As much as the industry has direct impacts on the economy, it also has some significant induced and indirect impacts. WTTC recognizes the contribution of tourism in a broader manner to capture the direct, indirect and induced impacts in the economy as shown below capture the direct, indirect and induced impacts in the economy as shown below. Direct contribution The direct impact of tourism to GDP shows the internal spending of the industry i.e. total spending by both residents and non-residents for leisure and business purposes as well as individual spending by the government. These government spending includes those services that are directly related to visitors, such like recreational (for example national parks) or cultural (for instance museums) Direct impact of Tourism to the country’s GDP is calculated to be consistent with the level of output, as shown in the National Accounting, characteristic of a tourism sector such as airlines, hotels, airports, travel agents and recreation and leisure services that directly deals with the tourists. Total contribution It includes the broader impacts on the country’s economy (i.e. the induced and indirect impacts). The indirect impacts of comprises of jobs and GDP supported by: Collective spending by the government, which aids activities of tourism in various ways as it is done on behalf of the entire community Tourism spending- a critical aspect of the present and future activity that comprises of investment activity like the building of new hotels and purchase of new aircrafts Purchases of domestic goods and services by such sectors that directly deals with tourists- including, for instance purchases of cleaning services and food by hotels, of catering services or fuel by airlines, and IT services by travel agents On the other hand, the induced contribution measures the GDP and the number of jobs supported by the spending of those people who are indirectly or dir5ectly supported by the tourism industry Conclusion The main motivation for a region or business to offer services to tourists is economic. The primary need of an individual business is in its costs, and revenues, while a region or community is concerned with the overall contribution of tourism to the economy, as well as its, fiscal, social and environmental impacts. A good understanding of direct, indirect and induced economic impacts of tourism is important for government, community at large and to the tourism industry Bibliography World Travel and Tourism Council. World Travel and Tourism Counci State of Hawaii Travel Tourism; A new economic perspective. London:: WTTC., 2006. Frechtling, Douglas C. Assessing the economic impacts of travel and tourism – Introduction to travel economic impact estimation. Ed. Ritchie and Charles R. Goeldner. second. New York: John Wiley and Sons Inc, 2004. Read More