Tourist tax: how it might work

Andy Burnham will give England’s mayors the power to introduce an uncapped tourist tax. This will be set as a percentage cost of accommodation – rather than a flat fee – at the discretion of regional leaders. Housing Minister Angela Rayner chaired a virtual meeting at No. 10 North today to discuss the tax.

The plans were initially announced under Keir Starmer’s government at the last Budget and outlined in the King’s Speech in May. In his first speech as prime minister, Burnham committed to starting the scheme towards the end of the 2027-28 financial year.

This tax could “raise hundreds of millions of pounds” for local public services, said The Guardian. But it could also be a “blow for the hospitality industry”, already “squeezed by tax rises and extra employment costs”.

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Where would the money go?

A tourist tax would allow mayors to “prop up crumbling local authority finances and invest cash back into the area”, said The Telegraph.

Local authorities are already facing a financial “crisis”, with a “record 35 councils now relying on £1.5 billion of emergency government financial support to balance their books”. This would also allow the 14 regional mayors in England a new “revenue-raising stream”, especially when they are unable to raise council tax bills, which is still a council-level decision.

This is part of Burnham’s “wider devolution agenda”, said The Times. He has also been a long-standing supporter of overnight levies, implementing a “city visitor charge” in April 2023 while he was mayor of Greater Manchester. It consisted of a £1 per room per night fee, which was designed to “pay for measures aimed at attracting more visitors”.

Does this happen elsewhere?

A tourist tax, or overnight levy, already exists in some parts of the UK. After Holyrood passed a law permitting the levies in 2024, Edinburgh introduced a 5% overnight rate this summer, capped at five nights. Glasgow also has a 5% rate, while Aberdeen’s is 7%. However, these rates are at the discretion of local authorities, with no central cap.

In Wales, a capped levy of £1.30 per person per night will be introduced in April 2027. This is reduced to 75p for hostels and campsites. The cities of Manchester and Liverpool also have voluntary schemes, of a £1 and £2 per room per night charge.

Across the world, major cities such as New York, Amsterdam and Rome all employ variations of a tourist tax. Berlin also applies a 7.5% tax on accommodation costs, while Paris has a tax based on the type of accommodation. For an overnight stay in a two-star hotel, for example, there is a €3.25 (£2.86) charge, and for a four-star hotel the rate is €8.45 (£7.43). Lisbon, however, levies a flat rate of €4.00 (£3.52), up to a maximum of seven nights.

How will it affect the hospitality industry?

Implementing these taxes is “not going to be painless”, Allen Simpson, chief executive of UKHospitality, told BBC Radio 4’s “Today” programme. He claimed it would add roughly £100 to £120 to the average cost of a family holiday, and feared that by devolving only one tax-raising power, mayors would “pull that lever until it snaps”.

Simpson’s trade body also claimed the move would cost 33,000 jobs and cause a £2.2 billion hit to the UK’s GDP. Other global destinations with a cap on their tourist charges have much lower VAT rates than the UK.

New Conservative shadow chancellor Andrew Griffith said that an uncapped tourist tax would be “hugely limiting for the chances of the young people who might otherwise be employed in tourism and hospitality”. It would also be “utterly wrong” to use the funds for “propping up dodgy town hall finances on the back of even higher youth unemployment”.

However, Mayor of London Sadiq Khan welcomed the proposal, arguing that a “well-designed, modest” overnight visitor charge would “raise and invest funding locally”.