The UK government has announced it will grant mayors in England the power to impose a new fee on visitors’ overnight stays. The move is said to mean more money can be invested in local areas. The fee will be applied by local leaders as a percentage of costs of hotels, bed and breakfasts and other forms of accommodation, instead of being applied as a flat fee. Supporters of the fee say the levy can ease financial strain on high streets, and local infrastructure, such as transport, waste management and emergency services, particularly in hotspots that are burdened by a seasonal tourist influx.
But the hospitality industry is weary, as leaders have warned it may place a threat on jobs and impact household budgets, particularly at a time where it is already burdened by high business rates, employment and operating costs.
“The benefit is that it could raise money for public spaces, transport, events and even marketing the destination,” says Giorgia Lardner FCSI, senior foodservice consultant at Cooper8. “If it’s invested properly (and clearly), it could improve the visitor experience and support the local economy. The concern is that there is no guarantee the money will be reinvested into hospitality and tourism, or that the rate will remain modest.”
Impacts on families and businesses
Some hospitality leaders say the fee could disproportionately impact local families and smaller local businesses, as consumer spend may need to tighten even further.
“We know, don’t we, that local government is struggling for funds – it was hit very hard by austerity,” UKHospitality chief executive Allen Simpson told BBC Radio 4’s Today program.
The Federation of Small Businesses (FSB) has warned the proposals risk undermining tourism, increasing costs for small businesses and discouraging visitors from choosing English destinations.
“Imposing an uncapped visitor levy in England is a kick in the teeth for the hospitality industry, at a time when small businesses are dealing with a deluge of cost rises,” said Tina McKenzie, national chair at the FSB. “Running costs have already increased for 91% of small hospitality firms over the last year. These businesses employ thousands and are key to keeping their local economies going – yet the levy risks pushing many to the brink. A third of hospitality businesses have already told us that they are likely to downsize, close or sell up in the next year.”
Furthermore, 692 hotel businesses have become insolvent over the last five years and 139 in the last year, according to accountancy group UHY Hacker Young. Martin Jones, the group’s head of hospitality & leisure, says that the financial challenges the industry faces explains why there is so much opposition to the new “tourism tax” being proposed.
“There is also an important affordability issue. More people are holidaying within the UK because they simply can’t afford to travel abroad,” says Lardner. “My biggest worry is that we are going to price people out of domestic travel without achieving what it intends. A percentage may look fair on paper, but the same additional cost matters far more to a family who are on a budget or, for instance, someone travelling for medical treatments, than to someone booking luxury accommodation or even work.”
Divided support
Some mayors across the country have backed the move, while others have expressed caution and refusal to bring in the fee. However, mayors will not be allowed to exempt whole localities within their regions from the tax, to avoid creating confusion for visitors and businesses. The levy will be introduced in a bill to Parliament “in due course”, which would apply to both Britons and people visiting from abroad. While the form of tax is common across Europe and the rest of the world, they are capped in several European cities.
“Allowing tourist hotspots to collect a small nightly fee ensures that visitors contribute directly to the upkeep of the places they enjoy, mirroring successful models already used across Europe,” says Penny Paddle, partner at law firm Spencer West LLP.
But for Lardner, the implications go well beyond this.
“Many overnight visitors aren’t international tourists; they’re travelling for conferences, networking, weddings, short domestic breaks,” says Lardner. “If I attend an event in London, for example, an extra charge might persuade me to travel home rather than stay overnight, or not add another day. The hotel loses the booking, but cafes, restaurants, bars, taxis, and shops lose that spending too. Longer term, visitors may also choose accommodation just outside an area where no levy applies, moving the economic activity away from the destination imposing it.”
On the other hand, this logic could help local towns outside of London to benefit from more spread-out visitor spending outside of the capital.
“However, it (again) isn’t as simple as that,” adds Lardner. “Visitors could simply sleep in the cheaper location whilst continuing to eat, drink and spend in London. I think we would have to see, there are so many variables and uncertainties depending on what each council does. But ultimately, the impact depends on the level and structure of the levy.”
Staying prepared
Critics of the fee are concerned with the impact on domestic travelers, for unfairly penalizing British families opting for staycations, which could impact the hospitality industry by deterring tourists towards cheaper destinations. It may also create competition for destinations that do not impose the levy, or push visitors abroad.
“It’s crucial that the smallest accommodation businesses like B&Bs and guesthouses are exempt from the levy,” adds McKenzie. “Local authorities must use their powers to protect the smallest of businesses if they choose to raise a levy. The added burden of extra administration, paired with price sensitivities, will be too much for them to bear.”
The spending of funds raised ought to be decided locally, “with small tourism and hospitality firms heavily involved in decision making” to ensure it goes to “the right place”, says McKenzie.
If used effectively, the levy could have a positive impact on local culture and infrastructure that could help generate more visitors and support the local economy.
“The key will therefore be setting the levy at a level that raises meaningful revenue without making accommodation noticeably less competitive,” says Ann Bibby, partner and hospitality industry expert at Menzies LLP, who foresees that mayors who choose to introduce the levy will ideally cap it at 5% to align with existing levies in cities like Edinburgh.
If the rate is too high, it could undermine the hospitality businesses it intends to support.
“If it raises £5 locally but costs the wider hospitality economy considerably more, it is not a successful policy,” adds Lardner. “Depending on the rate and the decisions made by each council, it could be particularly damaging for seasonal and coastal towns. Doesn’t it feel so counterproductive to charge the people who are bringing money into the local economy?”
Lauren Hurrell
