Devolution minister says new tourist tax is about ‘proportionality and fairness’

Oldham MP Jim McMahon has welcomed plans to give England’s mayors the power to introduce a levy on overnight visitors. But critics have warned it could cause ‘irreparable harm’ to the tourism industry

The Minister for devolution has said the Government’s tourist tax is about ‘proportionality and fairness in the system’, despite critics saying it could cause ‘irreparable harm’ to the tourism industry.

Jim McMahon, MP for Oldham West and Royton, said the plans to give English mayors more powers to introduce an overnight visitor levy on visitors, from 2028, were welcomed by regional leaders.

The tax will be a percentage of the accommodation cost and will apply to hotels, B&Bs and even short-term lets such as Airbnbs. Temporary accommodation and shelters or refuges would not be subject to the levy. The rate will be uncapped but the Government believes mayors won’t charge more than five percent.

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Mr McMahon defended the move, saying it was about giving elected regional leaders greater freedom to raise money and spend it on local priorities.

“There’s just a growing sense now that too much of the country is being held back by that approach, one by the inability to actually raise revenue to spend on local priorities, but then also just on spending decisions,” he told the Manchester Evening News. “The number of red tape governments… over generations have put on local government and regional government is part of the problem.

“The direction of travel we’re going in is more fiscal freedom for our mayors, recognising that they have a democratic mandate to the local residents that they can be judged through the ballot box.”

The move had already been hinted at by Andy Burnham last month, in his first sit-down interview with this paper. Mr Burnham did not explicitly rule out tax rises, when asked about the financial challenges of delivering his ambitious 10-year-plan for the country.

He said the decision to put up local taxes was for regional mayors, who would be able to impose certain surcharges, such as an overnight visitor levy.

Greater Manchester already has its own City Visitor Charge – a £1 per room, per night fee, that was introduced in April 2023 to pay for measures aimed at attracting more tourists.

Government sources have insisted mayors are unlikely to make the tax too high in order to protect local tourism industries, but the levy’s lack of an upper limit has sparked concern.

Mr McMahon said it was ‘deliberate’, adding: “Government can’t on the one hand say that we trust local leaders to do what’s right for their area, and we believe in that direct democratic accountability between them and their electorate and then say, but by the way, the government is going to bind your hands.”

But he insisted that mayors were aware that the levies would need to be ‘proportionate’.

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Mr McMahon said the tax needed to be a percentage of the accommodation rather than a flat fee.

He said: “The reason for that is, you can imagine a weekend in Blackpool, a modest B&B – why on earth should you pay a flat fee that means you pay exactly the same as somebody who’s staying at The Ritz in London.”

He added: “I think there’s a thing about proportionality and fairness in the system, where we have been quite clear about that.”

It is yet unclear how much Greater Manchester Combined Authority could actually raise from this proposed levy. Mr McMahon said it was for GMCA to do the analysis on how much to charge.

“Even in a modest economy, this is money that wasn’t there before,” he said.

Plans for the tax were first announced under former prime minister Keir Starmer.

Angela Rayner, Secretary of State for Housing, Communities and Local Government, outlined the proposals during a meeting with regional mayors in No 10 North in Manchester on Thursday.

She said: “Our amazing towns and cities, and our picturesque rural and coastal communities welcome millions of visitors every year – local leaders should have the power to make the most of that popularity.

“This measure will give mayors the choice to raise and reinvest funding where it’s needed most. It’ll help support the local services, public spaces and attractions that both residents and visitors rely on, with decisions taken by people who know their area best.”

More than 42 million international visitors came to the UK last year, spending more than £32bn.

Downing Street said the levy is about ensuring the benefits of tourism stay in local communities and would only apply to people paying for overnight accommodation.

However, the spokesperson was unable to say if areas without mayors would be able to introduce a visitor levy.

So-called tourist taxes are commonplace across European cities such as Rome, Berlin, Paris and Amsterdam.

Edinburgh introduced a five percent charge this summer.

However, Europe has half the VAT rates on hotels and hospitality – at 10 percent.

Mr McMahon rejected claims this could risk making holidays in Britain more expensive.

“If you go to large parts of Europe or America, you will pay the national sales tax but you’ll also pay a local sales tax on top of that…and then on top of that you can pay an overnight tax,” he said.

“But why do you go away? It’s for the experiences. I think this matters for quality of life, people do like the ability to go around the world in an affordable way. But it’s important that Britain can compete.”

The Government insists the levy will shield families from disproportionate costs for cheaper holidays.

The plans have sparked strong opposition from the hospitality industry.

The owner of Premier Inn, Britain’s biggest hotel chain, said it would be ‘hugely damaging’ and urged ministers to ‘avoid inflicting what could be irreparable harm on this large and vital sector of the economy’.

Industry trade body UKHospitality points out that England already has a higher tax base than many continental destinations with tourist taxes.

“It is simply not true to say that this is a standard thing elsewhere in the world,” said Allen Simpson, chief executive of UKHospitality. “It’s not a question of who levies the tax, it’s a question of the tax level, and we are making one of our biggest export sectors uncompetitive.”

He told BBC Radio 4’s Today programme that the plans would put jobs at risk in some communities, and that the new tourism tax in Edinburgh was “already having damaging effects”. He said holidays in the UK were “already more expensive” than they appeared because of higher VAT.

“What we’re talking about here is an open-ended power for mayors to set tourism taxes at any level they want,” Simpson said. “And remember that if you go to Paris, if you go to Rome, if you go to Berlin, you’re paying a small tourism tax, but it’s capped.”

He continued: “It will be the case that you’ll have holiday parks which can’t open in the shoulder seasons, and of course people who go on holiday will just have that little bit less money in their pocket.”

However, Mr McMahon pointed to popular holiday destinations like Lake District and Cornwall, saying they ‘they deal with the impact of tourism, in terms of being able to fulfill the demands of tourism and provide public services… and just improving that visitor experience‘.

He said it would ultimately be down to mayors to decide whether they will actually impose the levy.

Kemi Badenoch, leader of the Conservative Party, criticised the plans.

She wrote on social media: “Labour’s answer to everything? Tax more. Hotels already face 20% VAT. Now they’ll face VAT on Labour’s new tourism tax too.”

The announcement was also slammed by Reform UK leader Nigel Farage, who said ‘holidays in Britain will become hundreds of pounds more expensive’. He claimed the two Reform mayors in Greater Lincolnshire and Hull and East Yorkshire ‘won’t touch the ‘levy’.

The Conservative shadowing housing secretary David Simmonds said: “VAT is already charged at 20% on hotels – much higher than in other countries – and now they’ll pay VAT on this tourism tax too: a Labour double whammy.”

Henri Murison, chief executive of the Northern Powerhouse Partnership, said local leaders are ‘better placed than Whitehall in deciding how revenue should be spent.

But he warned about the overall tax burden on tourism.

He said: “We do need to consider the balance of tax raised overall by Scottish authorities, in Wales and now the English regions added to that by UK Government.

“In our Budget consultation response, we have called on the government to undertake a review on the international competitiveness of the current rate of VAT on hotel stays and related costs alongside introducing this new Mayoral power to make sure the UK maximises inbound tourism.”