Proposed plans to introduce a “holiday tax” in England could put up to 33,000 tourism jobs at risk and reduce Treasury revenue by almost £700 million, according to a new analysis that has increased opposition from the hospitality sector.
An Oxford Economics study commissioned by UKHospitality suggests that giving regional mayors the power to levy visitor taxes would have a significant negative impact on tourism demand, spending and overall economic activity.
Under the government’s proposals, mayors could introduce local taxes on overnight stays in hotels, guesthouses, hostels and holiday apartments, with revenue earmarked for transport and infrastructure projects. The amount of the levy would be determined locally and implementation would be optional.
The most severe scenario modeled, a 5% levy on accommodation, could lead to a £1.8 billion fall in tourism spending and the loss of 33,000 jobs across the sector by 2030. The same scenario is also expected to result in a £688 million fall in total tax revenue, reflecting lower economic activity.
Alternative models also indicate significant impacts. A flat charge of £2 per person per night could cut spending by £846 million and lead to the loss of 16,000 jobs, while a levy of £2 per room would still result in around 7,000 fewer jobs and a £400 million drop in tourism spending.
Matthew Dass of Oxford Economics said the policy risks weakening the UK’s competitive position as a tourist destination, particularly given the existing 20 per cent VAT rate for hospitality services.
“An additional tax would further weaken the country’s competitiveness,” he said, warning of further negative consequences for the economy.
Leaders in the hospitality and tourism sector have reacted strongly to the proposals, arguing that additional costs would deter both domestic and international visitors, even though the industry is already under pressure.
Allen Simpson, chief executive of UKHospitality, said the levy would “raise costs for Brits, make stays more expensive and decimate tourism”.
Operators warn that falling visitor numbers would not only affect hotels and accommodation establishments, but would also have knock-on effects on the entire local economy, particularly in regions whose jobs and investment rely heavily on tourism.
Simon Palethorpe, chief executive of Haven Holidays, said the tax could discourage domestic travel and reduce economic activity in areas with limited alternative employment opportunities.
Meanwhile, Fiona Eastwood, head of Merlin Entertainments, said the proposals risk making short breaks unaffordable for many working families, while Hilton manager Simon Vincent warned the move could make the UK less attractive compared to rival destinations.
The government has designed the policy to give local politicians greater control over the funding of infrastructure and public services, particularly in busy tourist areas. But critics argue that the economic trade-offs could outweigh the potential benefits.
Consultation on the proposals, which explored different levy structures and rates, closed last month, with the government yet to confirm its final position.
The debate comes at a time when the hospitality sector is already facing a challenging operating environment, including rising employment costs, higher business rates and weak consumer confidence.
The challenge for policymakers is to balance the desire to generate additional local revenue with the need to maintain the UK’s competitiveness as a tourism destination.
Industry leaders are calling on the government to instead focus on measures that boost growth, increase visitor numbers and support investment, rather than introducing additional costs that could dampen demand.
With tourism playing a crucial role in the regional economy and employment, the outcome of the policy debate is likely to have far-reaching implications, not just for the sector itself, but for the wider UK economy.
