Why the hospitality industry is losing sleep over tourist tax

When one of our most feted restaurateurs says the new tourist tax will prevent him expanding here, it should give the Government pause. Simon Rogan holds nine Michelin stars across his restaurants, from the three-starred L’Enclume to Aulis in Soho to further outlets in the UK, Thailand, Hong Kong and Malta. But any plans for more in the UK are on hold.“We’re under huge pressure,” Rogan said. “When you think you can’t get any worse, here comes along the tourist tax. It’s just another tax to add to the customer’s bill. It’s just one thing after another and it’s just like being strangled.”Rogan is not alone. Sir Rocco Forte, who chairs the luxury hotels group that owns Brown’s Hotel in Mayfair, said: “It’s really a disgrace. They talk about growth, and all they do is attack business.”At the other end of the spectrum, JD Wetherspoon founder Sir Tim Martin said the levy was bound to drive up costs across the sector. His pub group contains 56 hotels. The irony is that the hospitality trade was campaigning for a VAT cut — 800 restaurateurs, hoteliers and hospitality groups had signed an open letter to the Government pleading for a reduction — as this new measure was presented. The trade body UKHospitality was pushing for VAT to be halved from 20 per cent to 10 per cent. Brown’s Hotel, Mayfair VIA DEI MONTI PARIOLI 49a00197 ROMA - ITALYAngela Rayner, the Secretary for Housing, Communities and Local Government, brought the new tax to Parliament. The tourist charge is likely to become operational in early 2028. There will be no limit on how much councils impose and how they spend the amount they collect. The expectation is that it will be five per cent on an overnight stay, rather than a flat fee. Research from the Tax Policy Associates think tank estimates a tourist tax in England would bring in £600m a year. It may raise revenue but there is a downside to consider: the same Tax Policy Associates study predicts six million fewer overnight stays and a £700m drop in tourism spending, with most of that money heading abroad or to locations which choose not to adopt the tax (it will be up to individual councils if they decide to add the tax). UKHospitality reckons an extra five per cent in England will result in 33,000 job losses and an overall £2bn hit to the economy, this when the Government is facing a crisis with one million Neets not in education, employment or training. In London, the Mayor, Lord Khan of Tooting, is backing the tax. He’s promised to consult the industry before he decides how it should be implemented but says the fee needs to happen “sooner rather than later”. In London, where hotel prices can be hefty, that could lead to substantial increases. UKHospitality calculates that an average family would face a £99 increase on a four-night visit. Lord Sadiq KhanGreater London Authority/Caroline TeoAn opinion poll conducted in London found the imposition of the tax would deter visitors from coming to the capital. Two-thirds of recent tourists said they would be put off. Three-fifths said they would shorten their stays, find a cheaper room or not make the trip at all. The polling, by Stack Data Strategy, was on behalf of London Heritage Quarter, a business group representing enterprises in central London. They spoke to 1,005 adults from 10 different countries who had visited London in the previous 12 months.Read MoreMayor Khan wants it because he desires the income it will provide. The move plays heavily to Andy Burnham’s desire for greater devolution, for elected mayors to have greater tax-raising powers. Said the London Mayor: “A well-designed, modest levy has the potential to provide an important additional source of funding to support growth, strengthen London’s offer to visitors and help us remain globally competitive. It would allow us to reinvest in the places, infrastructure, culture and experiences that make London one of the world’s greatest cities to visit, while helping manage the pressures that come with welcoming tens of millions of visitors every year.”It has its proponents, not just Khan. The director of the British Museum, Nicholas Cullinan, has said the tax could help make the difference between the museum remaining free or having to charge. Councils are starved of funding, so it is natural they should be in favour. It is what they do with it that matters. Cullinan clearly would like to see some of it directed towards his museum. Khan speaks about using it to strengthen London’s offer to visitors and to reinvest in the things that make the city such a great place to visit. But he also talks of supporting growth and managing the pressures that tens of millions of tourists a year bring. That could cover a multitude of items. Khan has joined with the majority of his fellow Labour metro mayors and Rayner in insisting that the income can be used to boost tourism, to make locations more attractive. He was one of the signatories to a letter the mayors sent to Rayner and John Healey, the chancellor: “Foreign cities visited by British tourists from New York to Paris, as well as hundreds of smaller cities across the world, have long benefited from such levies while continuing to grow their tourism sectors. Granting the power to regions to introduce levies will help level the playing field by ensuring further investment in our cities, contributing to further growth.”Allen Simpson, chief executive of UKHospitality, hit back: “What we’re talking about here is an open-ended power for mayors to set tourism taxes at any level they want… 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.”The tax would hit London’s overseas touristsAFP/GettyIt is the case that tourist taxes are commonplace elsewhere. Currently, England is the only country in the G7 that does not allow local authorities to add tourist charges. London then would only be following the likes of rivals New York, Paris and Rome. But they do not have our high rate of VAT. In New York, taxes account for 14.75 per cent of the room rate plus a flat fee of as much as $3.50 per day. In London, without the drop in VAT, it would be 25 per cent. The highest tourist tax in the world is Los Angeles at 15.5 per cent. But again, it does not charge 20 per cent VAT. Several European cities, such as Amsterdam, Venice and Barcelona, brought in taxes to try and curb visitor numbers, to stop themselves being swamped and to curb the harm over-tourism causes, but that has not happened — their tourist traffic has continued to rise. That, though, is not London’s problem — it is not intended to lower tourism but to raise revenue. A tax on visitor overnight stays is separate from another existing charge, also referred to as a “tourism tax”. This is the amount international visitors must pay, post-Brexit, on goods bought in the UK. Pre-Brexit, tourists from outside the EU could claim a VAT refund; ever since we left the bloc that has been denied, so anyone must pay VAT with no refunds. This puts us at a disadvantage against EU tourist shopping hot spots. It’s hit London luxury stores especially hard, since visitors from outside the EU can buy the same designer handbag in Paris or Milan for 20 per cent less. In Paris and Milan and other EU cities, their standard VAT is cut from 20 per cent to 10 per cent for hotel rooms. Not in London. Here, unless there is a VAT reduction, overseas tourists will be paying 25 per cent to rest their head at night and probably paying 20 per cent when they shop, as opposed to 15 per cent on their room and nothing on goods in those competing EU places.We knew London was an expensive place to visit but it is worth bearing in mind how much of that is down to our politicians and not our businesses.