Government U-turn on tourist tax sparks anger in hospitality

In the Autumn Budget, it was announced that local mayors will have the power to impose a so-called ‘tourist tax’ on overnight stays, backpedalling on earlier promises. It has sparked a backlash from hospitality, which warned the move will increase costs within the sector.

Analysis from UKHospitality suggests the tax could rack up to £518 million in extra charges for domestic holidays, making ‘staycations’ more expensive and, therefore, less attractive.

As businesses battle rising energy costs, staffing shortages, and unpredictable business rates, we’re wondering how will this new tax affect the sector as it heads into the new year.

Why has the Government changed its mind?

The announcement of a tourist tax in England just days before the Budget was a 180 from assurances given weeks earlier. Local Government Secretary Steve Reed confirmed that regional Mayors will be given the power to charge tourists a tax for overnight stays in their towns and cities.

At the time, the government claimed that the tax will align England with other well-trodden tourist hotspots around the world, like New York, Paris and Milan, which already have similar schemes in place. Scotland and Wales are also introducing similar levies.

That said, UKHospitality has warned that the additional cost could end up being passed on to consumers, potentially affecting demand.

A consultation will be run to decide the rates of the tax. Edinburgh’s visitor levy (coming into force next July) charges a 5% payment on overnight stays. In Wales, the charge is set to be £1.30 per person, per night when it starts in 2027.

What does the holiday tax mean for Brits — and for hospitality?

A tourist tax is typically a small charge per occupied bed or room per night. It can be a flat rate or a percentage of the full price of the accommodation, sometimes it’s adjusted for the season, the type of accommodation, or the age and purpose of the traveller.

The idea is that revenue is usually reinvested locally, for transport, infrastructure and attractions, to improve the visitor experience and support the wider economy, which of course, is positive.

On the flipside, the worry for hospitality businesses will be how additional charges affects occupancy, pricing, and customer spending. Some hotels, B&Bs, and holiday lets may be able to absorb some of the cost, but others may have no choice but to pass it on to guests.

If the fees are set too high, this could also deter tourists from spending money in the region, potentially hurting revenue for local shops, pubs, bars, and restaurants.

The government claims that “reasonable” fees had a “minimal” impact on visitor numbers. But UKHospitality has highlighted that extra charges may influence affordability, particularly for families and price-sensitive visitors, especially during the ongoing cost-of-living crisis.

Kate Nicholls, Chair of UKHospitality, expressed outrage at the news, “This is a shocking U-turn that will only make life more expensive for working people.

“It could cost the public up to £518m in additional tax when they travel in the UK and having knock-on impacts for the wider hospitality sector.”

How should hospitality businesses adapt in 2026?

Before making any sudden movements, know that the details are still being finalised. The Bill is progressing through Parliament, and a formal consultation is expected to run until 18 February 2026, throughout which, UKHospitality has pledged to actively challenge the Government.

If the tax becomes law, mayors will maintain discretion over whether to implement the levy in their local area, the rate of the charge, and be able set exemptions.

Hospitality operators should keep an eye on developments and consider potential scenarios for occupancy and pricing. If tourist tax does become a reality in your area, clear communication with guests will go a long way.

You might integrate the levy creatively by including it in all-inclusive room rates or packages, offering tiered experiences, using dynamic pricing, framing it as a contribution to local infrastructure, providing small perks to offset the cost, or highlighting the benefits to guests to make the charge feel less jarring.

Thinking about potential pricing structures now, will help you smoothly integrate the charge without causing guests a nasty shock on their holidays.