Ministers call it a 5% levy. Tourists will see it as yet another tax on an already sky-high hotel bill — and the Treasury will even take VAT on the tax.
Britain has a tourism problem.
So naturally, the Government's answer is to make holidays more expensive.
Ministers want to hand local mayors the power to impose a new tax on overnight stays — dressed up in the soothing language of an “Overnight Visitor Levy”.
Don't be fooled by the jargon.
It is a tourist tax.
And the consequences could be disastrous for the very towns and cities it is supposed to help.
The great 5% con
We're told the charge could be around 5%.
Five per cent.
Sounds harmless, doesn't it?
It isn't.
Take a hotel room costing £100 before VAT.
Add a 5% tourist tax and the bill becomes £105.
Then comes the sting.
VAT is charged on the higher amount.
At Britain's standard 20% VAT rate, that means £21 VAT rather than £20.
The visitor therefore pays £126 instead of £120.
That's a 6% increase, not 5%.
So the Government takes a tax.
Then it takes VAT on the tax.
Tax on tax.
And somehow this is supposed to make Britain's tourism industry more competitive.
You couldn't make it up.
Britain's hotels are already taxed heavily
Here's the real scandal.
Britain already charges 20% VAT on hotel accommodation.
Across Europe, many countries recognise that tourism is highly price-sensitive and apply reduced VAT rates to hotels and accommodation.
Britain doesn't.
So a hotel in Britain can already face a 20% VAT burden while a rival hotel elsewhere in Europe may operate with a much lower rate.
Now politicians want to pile another percentage charge on top.
What happens next?
The hotel room gets more expensive.
The visitor thinks twice.
And the money that doesn't get spent in Britain gets spent somewhere else.
The tourist doesn't just buy a hotel room
This is where the Government's thinking falls apart.
A tourist isn't a walking hotel bill.
They spend money everywhere.
Breakfast in the café.
Lunch in the pub.
Dinner in the restaurant.
A taxi to the theatre.
A ticket to the attraction.
A few drinks.
A bit of shopping.
Maybe another night in the hotel.
That spending supports thousands of local businesses.
So when you make the hotel room more expensive, you aren't simply taxing hotels.
You're putting a tax on the entire visitor economy.
And visitors have choices.
If Britain becomes too expensive, they'll go elsewhere.
If one British town adds a 5% levy and the town down the road doesn't, why wouldn't the visitor compare prices?
Mayors get a new tax lever
And here's another nasty little detail.
There is no national cap on the proposed levy.
The Government may talk about 5%, but today's 5% could become tomorrow's 6%, 7% or more.
Once councils and mayors become dependent on the money, do we really believe they will voluntarily give it up?
Of course not.
A new tax has a remarkable habit of becoming a permanent tax.
And once the spending commitments are made, removing it becomes politically almost impossible.
“But other countries have tourist taxes!”
Yes.
And many of them have something Britain doesn't:
much lower VAT rates on hotels.
This is the bit supporters of a British tourist tax conveniently leave out.
You cannot compare one tax in isolation.
You have to compare the total price paid by the visitor.
A country can charge a tourist tax and still offer cheaper accommodation because its underlying VAT rate is lower.
Britain already starts with a 20% VAT rate.
Adding another tax and then charging VAT on that tax is hardly a recipe for attracting international visitors.
Who pays?
The Government will say the levy is paid by visitors.
But businesses know better.
The cost will either be passed on to customers or absorbed by hotels and guest houses.
If it is passed on, the room becomes more expensive.
If it is absorbed, margins get squeezed.
Either way, someone pays.
And when margins are already under pressure from wages, energy, food, insurance, business rates and other costs, telling hospitality businesses to absorb another hit is simply unrealistic.
The great economic irony
The Government says the money will be used to support local economies.
But what if the tax damages those economies?
What if visitors stay one night instead of two?
What if they choose a different town?
What if a family decides to holiday abroad instead?
What if a conference organiser chooses a cheaper destination?
What if a restaurant loses the customers who never made the trip?
The Treasury may collect a few pounds from every taxed room.
But the local economy could lose hundreds of pounds in spending that never happens.
You cannot tax your way to prosperity.
There is a much simpler answer
Want more money flowing into local economies?
Get more visitors.
Want more visitors?
Make Britain competitive.
Want Britain to be competitive?
Stop piling taxes onto the cost of visiting.
A lower rate of VAT on accommodation and hospitality would be a far more sensible starting point.
It would allow businesses to cut prices, improve facilities, invest and employ more people.
It would encourage visitors to stay longer.
And longer stays mean more spending across the local economy.
That is how you grow tourism.
Not by putting a “5%” sign on the hotel bill and pretending it doesn't matter.
Don't kill the goose that lays the golden egg
Britain's tourism industry is an enormous economic asset.
Hotels, guest houses, restaurants, pubs, attractions, theatres, shops, taxi firms and countless other businesses depend on visitors.
They don't need politicians to find another way of taking money from their customers.
They need politicians to get out of the way and let t
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