Hotel Tax Proposal Could Affect UK Tourism Industry

Britons and overseas visitors may soon face a new “hotel tax” on every overnight stay, under Treasury proposals designed to address rising public borrowing costs. The potential levy, still under consideration, mirrors similar tourist taxes in countries like France, where nightly charges range from under £1 for campsites to more than £12 for five-star accommodations.

Chancellor Rachel Reeves, who introduced £40 billion in tax hikes at last autumn’s Budget, has consistently stated that there will be no repeat of those increases. However, with bond prices falling and government borrowing rates at their highest since 2008, Reeves may need to find new revenue sources. Analysts warn that without tax increases or spending cuts, the UK risks breaching its fiscal rules, further undermining market confidence in the country’s economic stability.

The proposed nationwide hotel tax would apply to both domestic and international travellers. It comes amid regional efforts to introduce local tourism levies, such as Wales’ proposed £1.25 nightly fee for visitors and Edinburgh’s plan to implement a 5% accommodation tax starting in 2026. According to the TaxPayers’ Alliance, adopting the Welsh model across England could generate around £560 million annually. However, a system more akin to France’s could potentially raise over £1 billion.

Hotel owners, however, have voiced concerns over the impact on the industry. Sir Rocco Forte, whose luxury hotel group operates worldwide, called the tax a “pernicious new tax” that would add to existing pressures from national insurance increases, higher air travel fees, and the removal of VAT refunds for foreign tourists. He believes the tax would hurt the wider tourism sector, including restaurants, museums, taxi services, and shops, as visitors cut back on spending to offset higher accommodation costs.

Reeves is currently on a visit to China, promoting inward investment, but her timing has drawn criticism as the UK’s borrowing costs soar. Rising gilt yields have led to higher government borrowing costs, and the pound has dipped below $1.22, which, while making Britain cheaper for overseas tourists, could contribute to inflation driven by higher import costs.

If borrowing costs remain elevated, the Treasury may need to explore further options to meet its fiscal targets. This could include increasing corporation tax or cutting welfare and disability benefits. The upcoming spring statement on 26 March could evolve into an emergency budget, depending on how market conditions unfold.

Forte’s opposition reflects growing frustration within the tourism industry, which already faces significant tax and regulatory burdens. He notes that countries with tourist taxes often direct the funds to improve visitor facilities, while the UK’s proposal could instead contribute to the widening public finances gap.

Despite the backlash, Treasury sources remain cautious, dismissing discussions of a new hotel tax as mere “speculation.” The chancellor is committed to fiscal restraint and a review of public spending, aiming to eliminate inefficiencies. However, industry experts warn that a tourism levy could undermine the UK’s vibrant hospitality sector, potentially deterring tourists as costs rise.