Families could face paying almost £99 more for a week-long hotel stay in London after the Government gave regional mayors new powers to introduce a tax on overnight accommodation. Mayors and leaders of Foundation Strategic Authorities can decide whether to introduce a levy and how the revenue should be invested in their area, in consultation with their residents and local businesses, it was announced on Thursday.
How the levy would work
The new Overnight Visitor Levy will allow mayors and other local leaders to charge visitors a percentage of the price of their accommodation, with the money raised intended to be spent on local services, transport, public spaces, culture and tourism. Labour mayors across England have indicated that they will voluntarily limit the levy to 5%, despite the legislation being designed to give local authorities flexibility over the rate.
As reported by The Telegraph, families now face paying an extra £99 for a week-long break in London, or £198 for a summer holiday, trade group UKHospitality said. The average London hotel room cost around £282 per night last year including VAT, meaning a 5% levy in addition to VAT would amount to about £99 in additional costs for a seven-night stay, according to UKHospitality's figures.
Industry warnings
Unlimited tax raising powers on family holidays will have a "genuinely catastrophic" impact, risking at least 33,000 jobs and costing more than twice the saving from the VAT energy cut, UKHospitality warned. Allen Simpson, chief executive of UKHospitality, said: "The millions of families who will be forced to pay significantly more for their holiday will hardly be comforted by their money going to prop up local government, when they’re struggling to make ends meet."
"The 33,000 people who could lose their jobs as a result of this tax, during an employment crisis, will be rightly furious. In a week when the Government has talked about growth, cutting red tape, getting people back into work and supporting hospitality, it is set to announce yet another tax that will do the absolute opposite."
"Give Mayors one tax-raising power on one sector and they will pull that lever until it snaps. You just need to look at the long list of Mayors already lining up to do just that. The Government claims this tax is normal. It’s not. There are scant examples of a destination with our 20% level of VAT and a holiday tax, for a reason. If it wants to use that argument, it should practice what it preaches and lower hospitality VAT to 10%, in line with Europe."
"It’s now more important than ever that the Budget reduces hospitality’s costs, given the holiday tax is set to increase them once again. Tinkering around the edges is not enough. There has to be a substantial reduction in hospitality’s tax burden next month. Cut VAT, fix business rates and reduce NICs."
Political reactions
Conservative Shadow Housing Secretary David Simmonds said: "VAT is already charged at 20% on hotels - much higher than in other countries - and now they'll pay VAT on this tourism tax too: a Labour double whammy."
Secretary of State for Housing, Communities and Local Government Angela Rayner said about the levy: "Our amazing towns and cities, and our picturesque rural and coastal communities welcome millions of visitors every year – local leaders should have the power to make the most of that popularity. This measure will give mayors the choice to raise and reinvest funding where it’s needed most. It’ll help support the local services, public spaces and attractions that both residents and visitors rely on, with decisions taken by people who know their area best."
Mayor of London, Sadiq Khan, also said: "I strongly welcome the Government giving London the power to introduce an Overnight Visitor Levy. This needs to happen sooner rather than later. London’s visitor economy is a huge success story, supporting jobs, businesses and investment across the capital and the wider country, and I have long argued that London should have the same flexibility as other major global cities to raise and invest funding locally."
"A well-designed, modest levy has the potential to provide an important additional source of funding to support growth, strengthen London’s offer to visitors and help us remain globally competitive. It would allow us to reinvest in the places, infrastructure, culture and experiences that make London one of the world’s greatest cities to visit, while helping manage the pressures that come with welcoming tens of millions of visitors every year. I will work closely with London’s boroughs, accommodation providers, hospitality and tourism businesses and other partners, before final decisions are taken."
VisitBritain found that there were 42.6m inbound visits to the UK in 2024 with the visitors spending a total of £32.5bn and staying for a total of 293 million nights in the UK. The Government said this latest step in fiscal devolution will bring England in line with other countries where similar levies are in place, including in many cities in Germany, the United States, Italy, Netherlands, and Canada.
