Sadiq Khan eyes up vacationer tax for London accommodations regardless of warnings levy could be ‘extraordinarily damaging’ for companies

Sadiq Khan is considering a tourist tax in London‘s hotels despite warnings from hospitality bosses that it would be ‘extremely damaging’ for businesses.

The Mayor revealed he is ‘happy to look into’ the possibility of bringing in a small charge for visitors to the capital – although no figure has yet been suggested.

His team will now look at the evidence from Manchester and Liverpool, which have already brought in similar charges, as well as other cities around Europe.

The idea was discussed by politicians this week at the Centre for London think tank’s conference, and Mr Khan was asked whether he would support such a tax.

According to The Standard, the Labour Mayor said: ‘I’m happy to look into where it’s worked, what the issues are in relation to that particular policy… We’ll be looking at what cities are doing not just across Europe, but in the UK as well.’

Pressed on whether he supported the idea in principle, Mr Khan said: ‘Let’s wait and see what the evidence is. I’m somebody who believes in following the evidence.’

But Kate Nicholls, chief executive of the UKHospitality industry group, told BBC News: ‘London remains one of the biggest visitor destinations in the world, but the number of inbound visitors to the capital hasn’t yet returned to pre-pandemic levels.’

She said the UK’s high VAT rate means it ‘ranks poorly’ in global competitiveness for tourists, adding: ‘The introduction of a tourist tax would only damage that further.’

UKHospitality also claimed that additional taxes would be ‘extremely damaging’. 

At the conference on Monday, City of London Corporation policy chairman Chris Hayward said the tourist tax was something his team was already ‘looking at’.

He added: ‘We’ve got increasing numbers of hotels in the Square Mile now, so we are doing the work at the moment. 

‘I like the principle. I think it’s a good idea, but I think how you operate it is really important.’

Mr Hayward said it was vital to ensure ‘it doesn’t have the opposite effect and drive those tourists and those people you want to stay in your hotels away’.

Claire Holland, chair of the London Councils group, added that boroughs were ‘all for exploring with the Government, and with the Mayor, how there can be more fiscal devolution across London, including looking at how a tourism levy would work’.

Kim Taylor-Smith, the Conservative deputy leader of Kensington and Chelsea Council, said he was ‘absolutely in favour’ of the tax – while Green Party London Assembly Member Caroline Russell said it could help fund more public toilets.

And Liberal Democrat Assembly Member Hina Bokhari said she was ‘very supportive’ of the levy which could help support the capital’s nightlife sector.

Tourist taxes, which are common in cities across Europe and in Canada, are a levy on the occupation of short-stay accommodation in a local authority area.

They a normally a charge per occupied bed or room and are set at a flat rate such as €2 per bed per night, or as a percentage of the price of the bed or room.

In England, neither the central government nor local councils have the power to introduce a tourist tax – but Manchester and Liverpool have introduced it through a legal workaround.

Both city councils brought in tourism-based Business Improvement Districts (BID) in April 2023 which collect additional business rates payments from firms operating in specified areas.

Manchester’s BID levy, known as the ‘City Visitor Charge’, is payable by hotels and serviced apartments with a rateable value of £75,000 or more, in an area within Manchester city centre and a small adjoining part of Salford.

The levy is expected to raise up to £3.8million per year between 2023 and 2028 – and a report from the BBC in April 2024 found it had raised £2.8million in the first year.

In Liverpool, the BID levy covers the whole city and is payable for accommodation properties with a rateable value of £45,000 or more, with a cap of £50,000 per property.

The levy is 1.6 per cent of a property’s rateable value, rising to 4.5 per cent in 2024/25 and 2025/26. It is expected to raise £939,000 per year in the latter two years.

In Scotland, Edinburgh City Council is now drafting a scheme for a tourist tax and hopes to launch it from April 2026 – while Aberdeen, Highland and Argyll and Bute councils are also planning to consult on a levy.

The UK’s first so-called coastal tourist tax across Bournemouth, Christchurch and Poole in Dorset was approved in May following a ballot of hoteliers.

It would have required guests staying in larger hotels to pay an extra £2 per room, per night – but this was then put on hold in July following opposition from more than 40 hotels who lodged an appeal with the government over how the ballot was conducted.

Thanet District Council in Kent had also been considering a tourist tax, but dropped the plans in April after concluding it does not have the power to implement them.

The idea had also been discussed by Cornwall Council, but officials decided against it in July amid concerns over the impact on the tourism sector.

Birmingham has been considering plans for a £1 charge since 2020, when it was put forward before the 2022 Commonwealth Games.

Bath Council has also been discussing a proposal. But in Cambridge, hoteliers rejected a proposal in July to introduce a nightly £2 tourist tax.

The idea of a tourist tax in London was previously floated in January 2017 when the Greater London Authority published a working paper on the topic.

It cited three arguments for a tourist tax – one being that foreign tourists are able to ‘free ride’ by enjoying London attractions with free entry because they do not bear the same costs as UK and London taxpayers who support their funding.

A second is that tourists can also enjoy the benefits of many public goods in London such as parks, policing or elements of the transport network without having to pay the full social costs.

And thirdly, it was suggested that tourists impose costs on society such as pollution and congestion from use of the transport network, which affect London residents and other tourists.

The Institute for Fiscal Studies previously estimated that a tourist tax in England with a charge of £1 per person per night would raise approximately £420million per year.

The Northern Powerhouse Partnership estimated that £428million could be raised. In comparison, council tax raises about £30billion and business rates about £25 billion per year in England, according to Government figures.