Is London planning to tax tourists to save residents from ‘over-tourism’?

Is London planning a tourist tax?

There are reports that the capital city of England is set to impose a levy on those tourists staying overnight. It is a move that London Mayor Sadiq Khan has long called for.

Khan has said the move would ‘raise money from tourists to use that to get more tourists, to improve the tourist experience’ and that it would stop Londoners ‘inadvertently suffering’ from ‘over-tourism’.

The development comes as UK Chancellor Rachel Reeves is set to announce her long-awaited Budget in the House of Commons today (November 26). England’s public finances are in dire shape with the government projecting a multi-million-dollar shortfall. Yeah

But what happened? What do we know?

Let’s take a closer look.

London to impose tourist tax?

Chancellor Rachel Reeves will likely give Khan and other civic chiefs the power to do so. This will come via the English Devolution and Community Empowerment Bill, which is currently in the UK Parliament. The fee would be charged on stays in hotels, Airbnbs and other short-term rentals such as guest houses and holiday lets.

It comes on the basis of a recommendation from a cross-party oversight committee of the Greater London Authority (GLA) . According to reports, the tourist tax is being described as ‘modest’. This could be around $15 per night in hotels and $13 per night in Airbnbs.

The GLA has noted that similar levies have already been imposed in other cities including New York, Paris, and Milan. The report said New York City and Toronto have both enforced percentage-rate levies on stays. New York has collected $650.8 million (Rs 5,810 crore) per year with each visitor, on average, paying $19.62 (Rs 1,751). Tokyo, on the other hand, has adopted a flat-fee model – which has netted a collection of just $46.2 million (Rs 412.427 crore). This, even though the capital of Japan has the most overnight stays of any of the cities mentioned above.

In France and Italy, the amount paid depends on the location, type of accommodation and official “star rating”. The author said they would recommend either the flat-fee or the percentage system for London. This is because the UK “lacks a statutory national ‘star’ system for hotels present in France and Italy”.

The bill will allow local authorities to determine how much they want to charge tourists. Estimates say that the move could raise up to $316.8 million (Rs 2,828 crore) per year, according to an estimate from the Centre for Cities. A previous report from the Greater London Authority in 2017 stated that a five per cent levy projected a similar amount of revenue being generated.

Andrew Carter, chief executive of the Centre for Cities, was quoted as saying by The Times of India, “The model the government should adopt is already underway in Scotland, where Edinburgh, Glasgow and Aberdeen are introducing levies valued at a percentage rate on overnight stays in hotels, B&Bs and short-let accommodation.” He added, “Hopefully, introducing a tourist levy is the start of a bigger programme of devolving tax and spending powers to the capital. London is the most productive big city in the UK, and devolving more fiscal powers would give the capital more policy tools to accelerate growth in the economy.”

What is the UK government saying?

The UK government has said that research shows that “reasonable” fees have a “minimal” impact on the number of people visiting. It said the idea is to give cities, which are facing a budget crunch, some breathing room and that the money will also be ploughed back into transport, infrastructure and the visitor economy to potentially attract more tourists.

England is currently the only G7 nation prohibiting local authorities from levying tourist taxes.

Scotland and Wales previously introduced different types of taxes on overnight visitors. In Scotland, local authorities can determine their own tourist tax rate as a percentage of a visitor’s daily stay. Come 2026, Welsh authorities will be getting $1.72 (Rs 153) from every single tourist every night.

The government will undertake consultations to the plan till February 18 during which time it will debate several issues including whether there should be an upper limit on the amount of the tourist tax that can be imposed.

Khan was quoted by the BBC as saying, “I speak on a daily basis to those who work in tourism [and] hospitality, and one of the things we talk about is how London stays the number-one city in the world. The frustration many of them have is the lack of investment in the public realm… this is one way for us to guarantee being the number-one city in the world.”

He added that the city would work closely with the boroughs “but also with businesses in the tourism and hospitality sector because we want a scheme that everybody can get the best deal out of”.

Westminster City Council leader Adam Hug said a “significant portion of the money raised” must be invested in his region based on the number of visitors it gets. Hug added that it must show a “clear link to protecting and improving local services”. “It is essential that the government ensures mayors split the revenue with the local councils in their area to support these services, without which economic growth will suffer,” Hug added.

Government secretary Steve Reed has called the impending move a “ground-breaking step for the future of devolution”.

What critics claim

However, those in the hospitality sector are not happy.

They claim adding yet another tax will reduce London’s competitiveness, deter visitors from coming and bring down tourist demand – more so keeping in mind the already high cost of visiting the UK and the high levels of value added tax (VAT).

The industry body UK Hospitality has already warned that such a tax would make London “less attractive to visitors”.

Kate Nicholls, the group’s chief executive, told The Independent, “The idea that a tourist tax would fix the public finances is completely misguided, and would only serve to inflict damage on the UK’s tourism and hospitality sectors. The UK already ranks incredibly poorly when it comes to our tourism competitiveness, due to our high rate of VAT.

“This is in comparison to our European competitors, many of which have VAT set at around half our 20 per cent rate, and a tourist tax will only make us less attractive to visitors.”

“The potential estimated cost of a tourist tax, if inflicted on hospitality businesses, would push the additional costs they’re facing north of $5.28 billion (Rs 47,135 crore). That’s simply unsustainable.”

Allen Simpson, UK Hospitality chief executive, told the BBC he was “incredibly worried”, warning that it would “push up the price of holidays for Brits inside England”.

“You can’t put a half-a-billion-pound tax on a sector with no impact at all. Hotels are already worried about tomorrow’s Budget and what it will mean for business rates,” he said. “Eventually you have to stop balancing the books off the back of Britain’s high streets.”

With inputs from agencies