The hospitality industry is warning that a new tourist tax on hotel stays in England could cost the economy £2 billion and lead to 33,000 job losses, as leading figures say the levy will deter visitors and halt expansion plans.
Simon Rogan, who holds nine Michelin stars across his restaurants including L'Enclume and Aulis in Soho, said the tax has put any plans for more UK outlets on hold. "We're under huge pressure," Rogan said. "When you think you can't get any worse, here comes along the tourist tax. It's just another tax to add to the customer's bill. It's just one thing after another and it's just like being strangled."
Industry leaders speak out
Sir Rocco Forte, who chairs the luxury hotels group that owns Brown's Hotel in Mayfair, said: "It's really a disgrace. They talk about growth, and all they do is attack business." JD Wetherspoon founder Sir Tim Martin said the levy was bound to drive up costs across the sector. His pub group contains 56 hotels.
The measure was brought to Parliament by Angela Rayner, the Secretary for Housing, Communities and Local Government. The tourist charge is likely to become operational in early 2028. There will be no limit on how much councils impose and how they spend the amount they collect. The expectation is that it will be five per cent on an overnight stay, rather than a flat fee.
Economic impact projections
Research from the Tax Policy Associates think tank estimates a tourist tax in England would bring in £600m a year. The same study predicts six million fewer overnight stays and a £700m drop in tourism spending, with most of that money heading abroad or to locations which choose not to adopt the tax. It will be up to individual councils if they decide to add the tax.
UKHospitality reckons an extra five per cent in England will result in 33,000 job losses and an overall £2bn hit to the economy, at a time when the Government is facing a crisis with one million Neets not in education, employment or training. UKHospitality calculates that an average family would face a £99 increase on a four-night visit in London.
Mayor backs the levy
In London, the Mayor, Lord Khan of Tooting, is backing the tax. He's promised to consult the industry before he decides how it should be implemented but says the fee needs to happen "sooner rather than later". The move plays heavily to Andy Burnham's desire for greater devolution, for elected mayors to have greater tax-raising powers.
Said the London Mayor: "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."
Poll finds visitors deterred
An opinion poll conducted in London found the imposition of the tax would deter visitors from coming to the capital. Two-thirds of recent tourists said they would be put off. Three-fifths said they would shorten their stays, find a cheaper room or not make the trip at all. The polling, by Stack Data Strategy, was on behalf of London Heritage Quarter, a business group representing enterprises in central London. They spoke to 1,005 adults from 10 different countries who had visited London in the previous 12 months.
The director of the British Museum, Nicholas Cullinan, has said the tax could help make the difference between the museum remaining free or having to charge. Khan has joined with the majority of his fellow Labour metro mayors and Rayner in insisting that the income can be used to boost tourism, to make locations more attractive. He was one of the signatories to a letter the mayors sent to Rayner and John Healey, the chancellor: "Foreign cities visited by British tourists from New York to Paris, as well as hundreds of smaller cities across the world, have long benefited from such levies while continuing to grow their tourism sectors. Granting the power to regions to introduce levies will help level the playing field by ensuring further investment in our cities, contributing to further growth."
Allen Simpson, chief executive of UKHospitality, hit back: "What we're talking about here is an open-ended power for mayors to set tourism taxes at any level they want… If you go to Paris, if you go to Rome, if you go to Berlin, you're paying a small tourism tax, but it's capped."
Comparison with other cities
Tourist taxes are commonplace elsewhere. Currently, England is the only country in the G7 that does not allow local authorities to add tourist charges. London would only be following the likes of rivals New York, Paris and Rome. But they do not have the UK's high rate of VAT. In New York, taxes account for 14.75 per cent of the room rate plus a flat fee of as much as $3.50 per day. In London, without the drop in VAT, it would be 25 per cent. The highest tourist tax in the world is Los Angeles at 15.5 per cent, but it does not charge 20 per cent VAT.
Several European cities, such as Amsterdam, Venice and Barcelona, brought in taxes to try and curb visitor numbers, but their tourist traffic has continued to rise. That is not London's problem — the tax is not intended to lower tourism but to raise revenue. A tax on visitor overnight stays is separate from another existing charge, also referred to as a "tourism tax". This is the amount international visitors must pay, post-Brexit, on goods bought in the UK. Pre-Brexit, tourists from outside the EU could claim a VAT refund; since leaving the bloc that has been denied, so anyone must pay VAT with no refunds. This puts the UK at a disadvantage against EU tourist shopping hot spots, hitting London luxury stores especially hard, since visitors from outside the EU can buy the same designer handbag in Paris or Milan for 20 per cent less.
In Paris and Milan and other EU cities, their standard VAT is cut from 20 per cent to 10 per cent for hotel rooms. In London, unless there is a VAT reduction, overseas tourists will be paying 25 per cent to rest their head at night and probably paying 20 per cent when they shop, as opposed to 15 per cent on their room and nothing on goods in those competing EU places. London was already an expensive place to visit, but much of that is down to politicians and not businesses.
