5% tourist levy could cost 33,000 jobs, report suggests

UKHospitality has issued a dire warning that if governmental proposals allow local mayors to add tourism taxes to bills for overnight stays, there will be a significant number of job losses in travel and hospitality.

The levies caused a stir after being proposed in last year’s Autumn budget, and have since gone through consultation. Trade organisation, UKHospitality, has been one of the most vocal opponents, stating at the time that the tax could lead to £518 million in extra charges for domestic holidays, making ‘staycations’ more expensive and, therefore, less attractive.

Now, their latest report suggests there could be even deeper economic ramifications. Amidst a backdrop of rising energy costs, staffing shortages, and soaring business rates, UKHospitality argues that this could easily lead to even more businesses having to shut their doors forever.

What is the proposal?

The proposals would allow local mayors to enforce a 5% levy on all stays in holiday lets and hotels. This is similar to the model used by many major cities across the globe, including Paris and Milan. In places like New York, it’s even more steep, sitting at just over 14% of the total room cost. 

While details of the nationwide 5% levy are still being ironed out, there are some parts of the UK pushing ahead with their own plans.

One such city is Edinburgh, which plans to levy a 5% payment on overnight stays from July this year. It’s estimated the levy will earn the city more than £6 million during the Fringe. Charges in Wales, on the other hand, are reported to come into play next year and will be £1.30 per person, per night. 

Why a tourist levy could put holidays – and jobs – at risk

This latest report from UKHospitality compiled data from Oxford Economics and claims that the impact of the tourism tax will be nothing short of “devastating” on the economy.

The researchers modelled using a 5% levy, put in place by 2030. They state that it would result in a reduction in GDP of £2.2 billion, hit holidaymakers with a £1.6 billion tax increase, cause £688 million in reduced tax receipts to the Treasury, and also result in a loss of £101m in direct investment from hospitality and tourism businesses. 

The report also looked at the impact on the hospitality businesses themselves. They predict a £1.8 billion reduction in tourism spending and a staggering nine million fewer nights spent in accommodation. This, they argue, would result in 33,000 jobs lost. 

The researchers also modelled using a £2 levy per person per night and a £2 levy per room per night. “All scenarios result in a reduction in GDP, tourism spending, nights spent in accommodation and total jobs,” they share.

Allen Simpson, Chief Executive of UKHospitality, said: “The numbers are clear. A holiday tax would hike costs for Brits, make staycations more expensive and decimate tourism. There are no winners from a holiday tax. Holidays are for relaxing, not taxing. The Government should keep it that way and stop the holiday tax.”

Rising discontent

UKHospitality is not the only body lobbying for the Government to drop the plan. Last month, travel industry trade body ABTA shared that it too had written to the Government. 

In a statement, Luke Petherbridge, ABTA Director of Public Affairs, said: “Domestic and inbound tourism are worth more than £97 billion annually to the economy in England. We’ve long expressed concern with the cumulative impact of taxes and charges on UK travel and tourism, which is already uncompetitive on cost grounds.” 

He continued: “Adding further taxes to visitors who support vital economic activity across the country is short-sighted, and risks turning people off holidays in the areas imposing these charges.”

ABTA voiced particular concern that “a percentage-based model for any levy would be overly complex and administratively burdensome”. It added that if the levies did go ahead, there would need to be rules put into place to ensure that the money is spent on infrastructure that will benefit tourism. 

What’s next?

The consultation has now drawn to a close. The findings will be reported, and they may inform a draft bill if the government decides to push on with implementing the levy. There isn’t an exact time frame on this, however. 

Businesses should keep an eye on the developments and perhaps explore how hospitality businesses in cities with an established tourism levy have adapted.

While many of the details remain yet to be decided – and individual mayors will have control over the tax models adopted in their area – businesses can prepare by thinking about how they will integrate the tourism tax into their customers’ bills, how they will communicate it, and other ways they can cut costs to offset it. 

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Planet of the Grapes founder Matt Harris has over 25 years of experience in hospitality. Read his bi-monthly column for Startups now.

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