Chancellor could allow overnight ‘tourist tax’ on hotels in England

The hospitality industry has hit out at reports the government is planning to give mayors in England the power to introduce a tax on overnight hotel stays.

Chancellor Rachel Reeves is set to use next week’s Budget to let local authorities charge a so-called ‘tourist tax’ to raise hundreds of millions of pounds to invest in transport and public services, according to The Times.

UKHospitality said the introduction of any such fee would be a significant U-turn by the government.

Two months ago, Sir Chris Bryant MP, then tourism minister, told the House of Commons there were “no plans to introduce a tourism tax”.

UKHospitality said it had also received a letter from exchequer secretary James Murray stating the government had no plans to introduce such a fee on top of the price of accommodation.

While many destinations in Europe charge a small tax on hotel fees, guests also pay a lower rate of VAT than the 20% charged in England. UKHospitality said the addition of a 5% overnight levy, plus the VAT charged on the levy itself, would create an effective 27% VAT rate for consumers on their holidays in England.

Kate Nicholls, chair of UKHospitality, said: “We need to get consumers spending. But this, on top of the huge damage from last year’s Budget, would only mean people cut back more – and more jobs are lost.

“Hospitality cannot foot the bill for the rest of the economy yet again.”

Similar overnight levies are also being introduced by the devolved Welsh and Scottish governments.

Edinburgh is set to become the first city in Scotland to introduce a 5% overnight tax on hotel and Airbnb-style stays next July. In Wales, councils will have the power to charge a fee of £1.30 per person per night from April 2027.

Brits took over 89 million overnight trips in England in 2024 and stayed for total of 255 million nights, according to VisitBritain. UKHospitality said a 5% holiday tax would cost the public an estimated £518 million in additional tax. 

A Ministry of Housing, Communities and Local Government spokesperson said: “We are always open to hearing views from local leaders on issues like this.

“Places can already choose to introduce a levy on overnight stays through the Accommodation Business Improvement District model.”

Last week 345 hospitality businesses including pub giant Greene King, restaurant chain Wagamama and IHG Hotels & Resorts, signed a letter calling on the government to better support the industry and help it “get back to growth”.

Britain’s licensed hospitality sector has seen nearly 600 net closures over the past year, according to the latest Hospitality Market Monitor from CGA by NIQ.