UK Government faces backlash over possible holiday tax U-turn

The UK Government is facing fierce criticism from hospitality leaders after reports that a holiday tax could be enforced on visitors as an additional cost, effectively increasing the VAT rate for holidaymakers in Britain.

According to multiple reports, the government plans to allow mayors to introduce a holiday or tourist tax in the Budget on 26 November. The proposal would mark a sharp reversal of recent assurances given to the House of Commons, where Sir Chris Bryant MP, then tourism minister, said in September that the government “had no plans to introduce a tourism tax” as per the official record.

This assurance had been echoed in a letter sent to UKHospitality by James Murray MP, then exchequer secretary, who wrote that there were no plans to introduce such a measure.

Cost to consumers could reach £518 million

Brits took more than 89 million overnight trips in England in 2024 and stayed a total of 255 million nights, according to Visit Britain. A 5% holiday tax would therefore cost consumers £518 million in extra charges, on top of existing spending commitments.

Holiday taxes are usually charged on top of accommodation prices in the same manner as VAT. With 20% VAT, a 5% holiday tax and VAT applied to that tax, the effective rate for holidaymakers would reach 27%. This would place England among the highest in Europe for such costs, as reported by UKHospitality, even though competitors abroad generally apply far lower VAT rates to hospitality.

UKHospitality has urged the government to “stick to its word” and scrap any consideration of the tax.

Kate Nicholls warns of inflationary impact

Kate Nicholls, chair of UKHospitality, said the measure would be “another shocking U turn from a government who committed in the House of Commons only two months ago that it would not introduce a tourism tax” and had promised the same in writing.

She added: “I know the government is worried about the cost of living, but this holiday tax is little more than a higher VAT rate for holidaymakers. Brits take over 89 million overnight trips in England, and stay for a total of 255 million nights.”

She argued the tax would “ramp up prices and drive inflation” and described the potential effective VAT rate of 27 percent as damaging, especially when Ireland applies 9% VAT to hospitality and Germany sets a 7% rate.

Nicholls said the industry “cannot foot the bill for the rest of the economy yet again” and called on the government to reaffirm its previous commitment not to introduce a holiday tax.

Hotel groups warn investment will fall further

Twelve senior hotel leaders, including executives from Accor, IHG Hotels and Resorts, Hilton, Marriott International, Travelodge and Whitbread, have written to Chancellor Rachel Reeves MP urging her to “quell speculation” over the tax.

The group said a holiday levy “will not make good business sense” and would damage hotel investment, citing an “already severely pressured business case” as reported in their letter. They pointed to a steady decline in new hotel openings since the pandemic. Pre Covid figures showed 150 hotel openings each year, falling to 100 annually during 2022 to 2024, with further slowdown expected.

The letter said the UK is already seen as a high cost destination for both visitors and investors. Build costs have risen 40% since 2020, employment costs are up 4.1% year to date and profit per room has fallen by more than 4%. Business rate revaluations could see values increase by 100 percent unless substantial transitionary relief is offered, according to UKHospitality.

Hotel development is now shifting toward luxury city centre projects where higher rates can still be achieved. This leaves many economy hotels in secondary locations increasingly unviable. “Taxes will account for nearly one third of the price of a room,” the signatories warned.

Sector awaits clarity ahead of the Budget

With the Budget now a day away, the hospitality sector is bracing for what could be a defining policy moment. The government’s earlier ambition for the UK to attract 50 million visitors annually by 2030, as referenced in the hotel groups’ letter, hangs uneasily beside the prospect of a new tourism charge.

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