Britons and foreign visitors may soon have to pay a ‘hotel tax’ on each night’s stay, under proposals from the Treasury aimed at supporting the public purse as borrowing costs continue to rise.
The potential levy, part of ‘modelling exercises’ being carried out by officials, mirrors tourist taxes in countries such as France, where the nightly charge ranges from less than £1 at a campsite to more than £12 in five-star accommodation.
Chancellor Rachel Reeves, who introduced £40 billion in tax rises during last autumn’s budget, has repeatedly insisted that these increases will not be repeated. However, plummeting bond prices and the highest government bond interest rates since 2008 mean that it will soon be forced to find new sources of income. Analysts say that unless taxes rise or spending falls, Reeves risks breaching her self-imposed fiscal rules – a scenario that could further erode market confidence in Britain’s economic stability.
Under the future national scheme, both domestic travelers and foreign visitors would pay an additional surcharge for their overnight stay. This comes as several parts of Britain are investigating local tourist charges. Wales is proposing a nightly rate of £1.25 for visitors, while Edinburgh will introduce a 5 per cent tax on accommodation from July 2026. According to the TaxPayers’ Alliance, rolling out the Welsh model across England would raise around £560 million a year. However, adopting something closer to the French system could save more than £1 billion.
Hoteliers warn of adverse consequences. Sir Rocco Forte, whose eponymous hotel group has a global footprint, argues the measure would be a “pernicious new tax”, on top of employers’ national insurance increases, rising levies on air travel and the scrapping of VAT refunds for foreign tourists. He believes this will affect the entire tourism supply chain – from restaurants and museums to taxi drivers and shops – as visitors will limit their spending to offset the higher cost of accommodation.
Reeves, currently on a high-profile visit to China aimed at attracting foreign investment, has come under fire for the timing of her trip. Government bond yields have soared in recent days as so-called ‘bond market watchers’ demand higher yields for holding UK government bonds, pushing up the government’s borrowing costs. Meanwhile, the pound fell below $1.22, a fall that makes Britain cheaper for foreign travelers but also raises concerns about import-driven inflation.
If borrowing costs remain high, the ministry could look beyond a hotel tax to keep the Chancellor’s fiscal commitments intact. More substantial measures could include an increase in corporate taxes or cuts to social security and disability benefits. Observers note that the spring statement, scheduled for March 26, could become a de facto emergency budget if market conditions do not improve.
Sir Rocco Forte’s condemnation of the hotel levy reflects growing exasperation in the tourism industry, which claims the hospitality industry already faces heavy tax and regulatory costs. He points out that several other countries that levy tourist taxes reserve the proceeds to improve visitor facilities. In contrast, he fears that the British plan would simply divert proceeds to filling “the black hole” in public finances.
Despite the outrage, Treasury insiders remain tight-lipped, calling talk of a new hotel tax “speculation.” A spokesperson has insisted the chancellor will stick to her budget rules and continue to curb spending. Ministers plan to overhaul spending in June to “eliminate waste”, but industry observers argue a new tourism levy risks undermining one of Britain’s most vibrant sectors.
Ultimately, whether the chancellor can take stock without another round of tax increases will largely depend on market sentiment. As the cost of the national debt rises, so does the political imperative to find revenue sources that avoid a repeat of last fall’s steep tax increases. The final decision could depend on whether an increasingly value-conscious travel market is willing to pay an extra nightly rate for the privilege of visiting the British coast.