Mayors will soon have the authority to implement a fresh tourist tax on overnight accommodations. The Government has announced plans to grant local leaders the ability to levy a “modest charge” on guests staying in various lodging establishments such as hotels, bed and breakfasts, guest houses, and holiday rentals. This practice is already in place in major cities like New York, Paris, and Milan.

This initiative aims to empower mayors to generate funds for local projects, including enhancing transportation and infrastructure. Leaders like Andy Burnham of Greater Manchester and London’s Mayor, Sir Sadiq Khan, have shown support for this move. However, industry leaders have criticized it as a “damaging holiday tax” that will likely be transferred to consumers.

The announcement coincides with Rachel Reeves’ upcoming Budget presentation, where she will outline financial plans to address public finance deficits. Local Government Secretary Steve Reed emphasized the importance of leveraging tourism to bolster local economies and invest in community growth sustainably.

The decision was met with approval by regional officials. Sir Sadiq highlighted the positive impact of allowing mayors to implement a tourist levy, emphasizing its direct support for London’s economy and reputation as a global tourism hub. Similarly, Mr. Burnham expressed pride in the significant number of visitors to Greater Manchester, acknowledging their substantial contribution to the local economy.

While the move was praised by many, UKHospitality chief Kate Nicholls criticized the Government for introducing what she termed a “damaging holiday tax.” She warned that this tax increase could inflate travel costs for the public, potentially amounting to an additional £518 million in taxes and impacting the broader hospitality sector.

Nicholls raised concerns about the potential effects on consumers, suggesting that the tax hike could effectively raise the VAT rate to 27% for holidaymakers in the UK, making it one of the highest consumer tax rates in Europe. She emphasized that these additional costs would be borne by consumers, leading to inflation and contradicting the Government’s efforts to lower the cost of living.

A consultation period on the specifics of this measure will run until February 18.