A tourism tax is expected to be introduced in London, England. The British government has decided to give local governments in England the authority to levy a tourism tax. However, controversy is expected because there is no separate cap on the tax rate.
According to local media on the 12th, the British government has finalized a plan to grant local governments in England the authority to introduce their own "overnight visitor levy" by 2029. The levy adds a certain percentage to visitors' accommodation bills and is mainly borne by tourists, so it is called a "tourism tax."
What stands out is that there is no cap on the rate. Amsterdam in the Netherlands levies 12.5% of central city hotel room rates as a tourism tax, and Barcelona in Spain charges a set amount per night, with each city fixing its own tourism tax rate or amount. By contrast, the British government did not set a separate cap, allowing local governments in England to set the rate autonomously according to local circumstances.
However, the actual tourism tax rate is likely to stay below 5% of the room rate. London Mayor Sadiq Khan and other mayors from the Labor Party said they would voluntarily limit the rate to within 5%.
According to the BBC, mayors from the Labor Party said in a letter to U.K. Treasury Minister John Healey and Minister for Levelling Up Angela Rayner that 5% is a "reasonable ceiling" for the tourism tax. They explained that 5% is "a balance point that prevents local levies from becoming excessive or varying widely by area, while still leaving room to adjust to each area's circumstances when needed."
The authority to levy a tourism tax will be granted to regions across England, including London, Liverpool, Greater Manchester, West of England, West Yorkshire, North East England, and York and North Yorkshire. Whether to actually introduce the tourism tax and the specific rate will be decided by each local government after gathering local input.
This is not the first time a tourism tax has been introduced in the U.K. Edinburgh in Scotland used devolved legislative powers to introduce a tourism tax equal to 5% of room rates in July. Other Scottish cities, including Glasgow and Aberdeen, are also pushing to introduce a tourism tax. However, this is the first time local governments in England are being granted the legal authority to introduce their own tourism taxes.
The British government has been pushing to introduce a tourism tax in England since late last year. Rachel Reeves, then the chancellor, said she would grant each local government the authority to introduce a tourism tax through a devolution and community empowerment bill working its way through Parliament. The Financial Times (FT) said this measure is the first major step related to fiscal devolution since Andy Burnham became prime minister in July.
Opposition is strong. Critics say that with travel costs in the U.K. already high, adding a tourism tax could further burden visitors. According to VisitBritain data, the average hotel room price in July was £198, up 5% from a year earlier. UKHospitality, an association of the U.K. hotel and hospitality industry, argues that introducing a tourism tax would eliminate 33,000 jobs, increase holidaymakers' tax burden by £1.6 billion, and reduce gross domestic product (GDP) by £2.2 billion.
The daily The Times said, "The introduction of a tourism tax comes at a time when the cost of domestic and overseas travel in the U.K. is already high," but added, "Although there is no cap on the rate and local mayors can freely decide the level of the charge, it is not expected to be set so high that it leads to a drop in tourist numbers."