Ministers faced a backlash from the hospitality industry after they announced mayors in England would be given sweeping powers to levy taxes on hotels and Airbnbs.
The plan, unveiled Thursday by Angela Rayner, local government secretary, would allow mayors to impose a “tourist tax” with no limit on the amount they can charge and little control over how they can spend it.
The move, which gives mayors some of their most significant tax-raising powers, was welcomed by regional leaders who said it would give them a vital revenue stream at a time when local governments face a funding crisis. Mayors are expected to present their detailed plans for using the new powers in early 2028.
But it was met with outrage from the hospitality industry, who expected the government to set stricter conditions on how much mayors could charge and how the money would be used.
UKHospitality, the industry trade body, said a 5% nightly charge across England could lead to the loss of 33,000 jobs and damage the economy by £2 billion, with regions more reliant on tourism such as the Lake District hit hardest.
The owner of Premier Inn, Britain’s largest hotel chain, said it would cause “huge damage” and urged ministers to “avoid causing irreparable damage to this large and vital sector of the economy”.
Eddie Nelder, co-owner of Choice Hotels, a chain of five hotels in Blackpool, said: “We’re here trying to survive, waiting for government help, and getting another hammer blow. It feels like we’re being strangled.”
However, Rayner insisted that tax-raising powers would help fund local communities.
“This measure will give mayors the opportunity to raise and reinvest funding where it is needed most,” she said in a statement ahead of a meeting with the country’s mayors at Number 10 North in Manchester.
“This will help support the local services, public spaces and attractions that residents and visitors alike rely on, with decisions made by the people who know their area best.”
The rate will soon be set at no more than 5% in almost every major English city after every Labor metro mayor agreed to cap their fees at that level.
In a joint letter to Rayner, they wrote: “Foreign cities visited by British tourists from New York to Paris, as well as hundreds of smaller towns around the world, have long benefited from such levies while continuing to grow their tourism sectors. Giving regions the power to introduce levies will help level the playing field, ensuring further investment in our cities, promoting further growth.”
But much of the east coast will not have to pay the tax after their mayors – two British reformers and one Conservative – said they would refuse to introduce it.
The move follows a consultation launched by Keir Starmer’s government and will bring England in line with many European countries and the US, where holidaymakers have been paying overnight visitor fees for years.
Similar charges also apply in Wales and Scotland, although they will be limited in Wales.
Edinburgh became the first city in Scotland to introduce a tourism tax, setting it at 5% in July. In Wales, from April 2027, councils will have the power to charge a tax of £1.30 per person per night for most rooms.
Under the proposal, which is expected to be introduced into parliament as a bill within months, mayors would be allowed to levy a fee as a percentage of the cost of an overnight stay rather than a flat fee.
Westminster ministers will limit the number of nights it can apply to to avoid a hit to long-term rental properties. It is understood that the upper limit is likely to be higher than the 5% set by Holyrood.
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Any commercial rental property will be subject to tax, although there will be an exemption for those that are let only occasionally on an occasional basis.
Mayors would be allowed to decide whether to exempt other properties, such as festival campsites. They will also be allowed to share revenue with local councils.
The move is one of the biggest transfers of power from the Treasury to local leaders in years and comes ahead of Andy Burnham’s government’s first budget, in which ministers pledged to hand more taxing powers to local leaders.
It comes at a time when many local authorities are struggling with funding. Last year the government handed out £1.3 billion of emergency funding to a record 28 councils, without which some said they would have gone bust.
But it also comes after a concerted government effort to ease pressure on the hospitality industry as many businesses struggle with high inflation and rising national insurance and minimum wage costs.
Earlier this summer, the former Chancellor cut VAT on British summer holiday destinations in a program she called the Great British Summer Savings Scheme.
Meanwhile, in one of his first speeches as Prime Minister, Burnham announced he would cut rates for pubs, clubs and live music venues.
Many hospitality businesses are struggling with high inflation, as well as the extra National Insurance and minimum wage costs introduced by Reeves in her first Budget.
Allen Simpson, chief executive of UKHospitality, told BBC Radio 4’s Today programme: “What we’re talking about here is the unlimited power of mayors to set tourist taxes at whatever level they want… If you go to Paris, if you go to Rome, if you go to Berlin, you pay a small tourist tax, but it’s limited.”