British holidaymakers could soon face an additional charge for overnight stays in hotels and Airbnbs across England, under new plans expected to be unveiled by Chancellor Rachel Reeves. The proposed 'holiday tax' would grant local mayors the power to levy a tourist charge, a move the hospitality industry warns will collectively cost Britons an estimated £518 million in extra expenses.
Powers for Mayors and Industry Backlash
The initiative, anticipated in the budget scheduled for 26 November, is designed to provide mayors with a new funding stream for regional projects. By amending the English devolution and community empowerment bill, the Chancellor would enable city leaders to impose a charge on the cost of an overnight tourist stay.
However, the trade body UKHospitality, representing thousands of businesses, has voiced strong opposition. The organisation estimates that a tourism tax set at 5%—the same rate due to be implemented in Edinburgh from next July—would result in an effective consumer tax of 27% when combined with the standard 20% VAT. This would make it one of the highest tourist tax rates in Europe.
Financial Impact and Inflationary Pressures
Kate Nicholls, the chair of UKHospitality, stated that the levy would act as a higher VAT rate for holidaymakers. She highlighted that Brits take more than 89 million overnight trips in England annually, totalling 255 million nights. "This is a bill we will all have to pay, and will only serve to ramp up prices and drive inflation," Nicholls cautioned.
The potential revenue for local authorities is significant. A coalition of mayors, including London's Sadiq Khan and Greater Manchester's Andy Burnham, has previously advocated for such a levy. They suggested that a charge of £1 to £5 per night in Greater Manchester could raise between £8 million and £40 million per year for local infrastructure.
Following Devolved Nations and Other Budget Measures
Government sources note that England is an outlier among developed nations for not having a tourism tax. The devolved governments are already moving ahead; Edinburgh will introduce its 5% charge next year, while Welsh councils will have the power to charge £1.30 per person per night from April 2027.
In a separate budget measure, the Chancellor is also expected to introduce a so-called "milkshake tax," ending the exemption that milk-based drinks currently have from the soft drinks industry levy. This change, which could also see the sugar threshold lowered, may raise an additional £50 million to £100 million.
A Treasury spokesperson declined to comment on budget speculation, reiterating that the upcoming announcement will focus on the government's priorities of cutting waiting lists, national debt, and the cost of living.
