The UK government is set to grant English mayors the authority to impose a new “overnight visitor levy” on hotel stays, a proposal that has sparked debate over its potential impact on the hospitality sector and tourism. The levy would be calculated as a percentage of the room cost, with some local leaders indicating plans to cap the charge at 5 percent. Both domestic and international visitors would be subject to the tax, which hotels would be responsible for collecting and remitting. The details of how the revenue will be allocated remain unclear, as there will be no formal oversight mechanism for spending decisions.

The initiative is part of broader efforts led by Andy Burnham, the Mayor of Greater Manchester, aimed at deepening fiscal devolution and enabling local authorities to retain more revenue generated within their areas. Proponents argue that targeted visitor taxes are common internationally and can help fund regional development. However, critics warn that this latest levy comes on top of several cost increases affecting the hospitality industry, including recent rises in national insurance contributions, minimum wages, and business rates. The higher business rates have disproportionately affected hotels compared to other property types, and while some relief was granted to pubs, hotels remain subject to the hike.

The UK’s high taxation on hotels extends beyond the overnight levy. Currently, the standard VAT rate on hotel accommodations stands at 20 percent, substantially higher than rates in most other European countries. Since VAT would also apply to the new levy, total tax on hotel rooms could reach approximately 26 percent. Industry observers point to Amsterdam, where combined taxes on accommodation exceed 33 percent, yet that city has policies aimed at limiting tourism rather than encouraging it.

Hospitality advocates contend that the additional visitor tax will likely decrease demand, with repercussions for an industry already facing significant challenges. According to recent estimates, the sector has lost about 100,000 jobs over the past two years, many of which were filled by younger workers—a demographic that supporters say should be a focus for economic support. For families, the levy could add a tangible extra cost; one calculation suggests that a typical week-long stay at a holiday park in Hastings might see an increase of around £50 under a 5 percent levy plus VAT.

The prospect of the levy is causing concern among major hotel operators. Whitbread, which owns Premier Inn, has indicated that it may reconsider investment plans for new properties due to the added financial burden. Analysts suggest a quicker remedy for the industry’s tax pressures could be a reduction in VAT on hospitality services to align the UK more closely with European competitors. Interestingly, Andy Burnham himself has previously expressed support for lowering the VAT rate on social grounds during discussions with industry stakeholders.

As the overnight visitor levy moves closer to implementation, industry groups and some local leaders are calling for balanced measures to ensure that the pursuit of regional funding does not undermine the viability of the hospitality sector or deter tourism growth. The government’s upcoming budget plans are expected to be critical in determining whether any relief or adjustments will be offered to address these concerns.