Rachel Reeves has been urged not to impose an “extremely damaging” Venice-style tourist tax on hotels across England.
The Chancellor was said to be mulling a tax raid on hotels as she scrambled for ways to plug a spending gap created by the Government’s soaring bill for borrowing. The Treasury did not deny reports that officials had modelled what such a levy would look like.
A country-wide “hotel tax” – paid by both domestic and foreign tourists – of £1 per person, per night, could raise more than £400m a year.
Such a tax is being adopted in Wales and Scotland and has been imposed in a string of the world’s most popular tourist destinations, including Paris, Barcelona and Venice.
However, critics warned the tax would deal a fresh blow to Britain’s beleaguered tourism industry, which is yet to fully recover from the coronavirus pandemic and has taken a hit from a VAT raid on foreign shoppers.
Kate Nicholls, chief executive of UKHospitality, which represents hotel and restaurant owners, said: “The UK remains one of the biggest visitor destinations in the world, but the number of inbound visitors hasn’t yet returned to pre-pandemic levels.
“As well as dealing with other economic shocks over the past four years, our hospitality sector is still recovering and we should not be considering charging visitors, foreign or domestic, an additional tax.
“The UK already ranks poorly in its competitiveness on the global tourism stage, with our high rate of VAT, and the introduction of a tourist tax would only damage that further.
“Hospitality businesses are already burdened with increasing costs in every part of their operations, with an additional £3.4bn in employment costs and business rates hitting in April, so further taxes on the sector would be extremely damaging.”
On Sunday, it was reported that Ms Reeves was looking at the potential “hotel tax” as part of efforts to balance the Government’s books.
Market ructions have pushed up the UK’s cost of borrowing and put the Chancellor in danger of breaching her self-imposed spending rules.
Whitehall sources did not deny a hotel tax was being considered, although it was not clear what form it would take.
Neither central government nor local authorities currently have the legal powers to introduce a hotel tax in England, meaning new laws would have to be passed.
The devolved Labour government in Wales is currently pushing ahead with changes to introduce a fixed levy of £1.25 per person, per night. In Edinburgh, Scotland, a levy of 5pc of accommodation costs has been proposed.
Visitors to Venice already pay between €1 and €5 depending on whether they stay in a one to five-star hotel, respectively. Last-minute bookings incur another €10 fee.
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A fee of £1 per night, per person in England would raise £420m a year for Treasury coffers, according to a previous estimate by the Institute for Fiscal Studies.
Sir Rocco Forte, the UK businessman and hotelier, warned that a tax in England would deal yet another blow to Britain’s tourism industry after taxes on air travel and shopping.
He told the Mail on Sunday, which originally reported the tax proposals: “This would be a pernicious new tax charged on top of all other taxes.
“The UK is already not a cheap destination, and this can only deter cost-conscious visitors who will increasingly choose to go elsewhere.”
A Treasury spokesman said: “We do not comment on tax speculation outside fiscal events.”
Visits to the UK have yet to recover to pre-pandemic levels, according to UKHospitality.
Overseas tourists made almost 38m visits to the UK in 2023, while there were 86m stays by domestic tourists. That compared to 41m and 93m respectively in 2019.