Increasing the cost of hotel rooms and Airbnbs is not just a blow to the hospitality sector, it will hammer all businesses, argues James Ford

The incoming tourism tax is very bad news. And not just for the obvious reasons or the obvious suspects.

This tax comes as a further body-blow to London’s hospitality sector. Business rates are already increasing for hotels, with average bills rising by 115 per cent, adding around £200,000 over three years. Tax rises in 2025 have already added £3.4bn to hospitality’s bottom line, with increases to employer national insurance contributions adding £1bn alone to wage bills. And all this set against falling footfall, weaker consumer confidence and tightening household budgets. Hammered by business rates, squeezed by tax rises and sabotaged by the cost of living crisis – hasn’t this sector suffered enough?

The tourism tax is also bad news for London’s international reputation. As Ros Morgan has eloquently argued in these pages earlier this week, “London is expensive enough for tourists”. A poll for The Caterer that found almost 60 per cent of the public would consider changing their holiday plans if an overnight visitor levy added to their bills would seem to bear that out. An Oxford Economics analysis of the impact of a tourism tax for UK Hospitality has estimated that it could cost £2.2bn in lost GDP, lead to 3.5m fewer visits and wipe out 33,000 jobs in the sector.

Tourist tax won’t just hurt tourism

But we need to dispel the myth that making hotel rooms more expensive only negatively impacts tourists and hotel operators. Business travel accounts for approximately 25 per cent of hotel stays in London, with the capital accounting for 57 per cent of all inbound business visits to the UK. Some 63 per cent of all UK business travel expenditure is concentrated in the capital. And, more importantly, business visitors spend about twice as much per night (£209 vs £101) compared to other visitors and collectively contribute around £5bn a year to the UK economy.  

The cruel truth is that this tax will not just make your next British city break a bit more expensive. It will hit your business in multiple ways. It will negatively impact your sales staff if they stay overnight in the UK trying to generate revenue for your business. It will hit your clients when they come to town to negotiate their next contract with you. If you want to attend a conference, this will increase the expenses claim that you submit. If your business is multinational, then this tax will add to your firm’s bottom line every time one of your overseas staff flies in for a meeting. 

If we really must have a tourism tax (and I really don’t see that we must) then how can we mitigate the tax’s more egregious impacts? The hospitality industry has begged the Treasury to cut VAT by 10 per cent to avoid more closures and job losses. But what will the Prime Minister do to help other, non-hospitality businesses? It is clear that businesses urgently need some mechanism to claim back this tax, like how businesses can claim back VAT. Better still, they should be exempted from it entirely, so that they simply don’t get charged at the point of sale. In the current climate, we should be looking to reduce the burdens on UK businesses, not needlessly adding to them.

The government is keen to pitch the tourism tax as a harmless little earner for provincial mayors. But this is not just a tax on obnoxious American tourists. This is an insidious tax on companies simply doing business.

James Ford is a former adviser to Mayor of London Boris Johnson, specialising in transport, environment and technology policy