Further clarity sought on tourist tax as Labour mayors set ceiling

The government’s announcement of plans for an overnight visitor levy to be set by mayors and local leaders was met with concern across the sector, as more clarity is sought.

The government said that a bill would be introduced in due course to bring in the levy and that it expected mayors and Foundation Strategic Authorities leaders to set out spending plans by early 2028.

The government added it would protect budget holidays by requiring the levy to be charged as a percentage of the cost of accommodation, rather than as a flat fee, shielding families from disproportionate costs for cheaper holidays.

It added that the money raised: “Will directly benefit England’s tourism hotspots by investing money back into their communities, which will support regional tourism, help manage the footfall of visitors, and improve areas for those living there.”

Mayor of London, Sir Sadiq Khan, 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.

He added that that the capital's tax would not be above 5% of the cost of an overnight stay.

In a letter to Chancellor John Healey and Local Government Secretary Angela Rayner, the Labour metro mayors also said that 5% represented a "reasonable ceiling" on the tax.

They said: “It provides a balance of ensuring that local levies are not excessive, or vary significantly between regions, while also leaving room for local variation as appropriate.”

UKHospitality said that unlimited tax raising powers on family holidays would have a “genuinely catastrophic” impact, risking at least 33,000 jobs and costing more than twice the saving from the VAT energy cut.

Allen Simpson, Chief Executive, 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.”