The debate: concerns mount over tourism tax

Inspired by similar initiatives across Europe, the British Government is rolling out a ‘tourist tax’ and operators across retail and hospitality sectors are raising concerns that doing so could negatively impact the small-scale businesses that make regions appealing to tourists. 

Edinburgh is on course to introduce a 5% overnight levy on stays from 24th July 2026, while proposals for an Overnight Visitor Levy Bill that will enable local leaders to introduce a charge on overnight stays were recently announced in England.

It is proposed that the revenue raised will be used to invest in projects that improve the area, which has proven successful in Manchester, where visitors staying in a city centre hotel have been given the option to pay a supplementary £1-per-night to fund activity promoting the city as a destination. 

Three industry insiders share their thoughts on the expansion of tourist taxes.

Polly Cochrane, director at Sweetcombe Cottage Holidays

One of our biggest concerns is the lack of awareness within the hospitality and tourism sector about the impact this could have on local businesses like ours. Without a proper understanding of the bigger picture and consultation of local communities, it makes engaging in the decision-making process much more difficult. Any legislation passed through law needs to be properly thought through, with transparency that any additional revenue raised is ring-fenced and put back into affected local economies.”

The cost for people visiting UK destinations could be quite significant. At the widely discussed £2 per night rate, a typical family booking could cost £100 more than it does currently.

Guests who stretch their budget to pay for accommodation may be less likely to eat out at local restaurants and spend less at local shops and businesses. Without a clear commitment to supporting local economies, a tourist tax may cause more financial damage to smaller businesses in the area.

We work closely with The Professional Association of Self-Caterers (PASC), who have done important analysis into this issue. They have found that when accounting for VAT, the UK’s overall tax burden on holidaymakers already exceeds the combined equivalent of sales tax and tourist tax in many European countries. Only the Netherlands and Denmark have higher VAT rates than the UK, meaning the comparison is less straightforward than it appears.

Tom Warsop, founder of Gourmet Getaways

I think the debate around the tourism tax has focused too heavily on accommodation and not enough on the wider visitor economy. Tourism is an ecosystem and hotels, cafés, bakeries, pubs, markets and independent shops all feed into whether a place feels worth visiting. If councils introduce a levy, they need to treat hospitality and retail businesses as partners in shaping how that revenue is used, rather than simply seeing tourism as a source of extra income.

There’s also a branding risk for destinations that should not be ignored. Cities and coastal towns spend years trying to market themselves as welcoming, accessible and good value. A visitor charge can cut against that messaging. In hospitality, perception matters enormously. If guests arrive already feeling squeezed financially, businesses spend the rest of the experience trying to rebuild that goodwill. That said, I don’t think every levy is automatically negative. In places struggling with overcrowding, reinvestment is necessary. The problem comes when there’s no obvious connection between the extra charge and the visitor experience itself.

Food businesses may also face pressure to absorb customer frustration that has nothing to do with them. When travellers feel a trip has become expensive, restaurants are often where people start scrutinising value most aggressively. Staff end up dealing with more complaints about pricing, service expectations become higher, and the overall atmosphere can become more transactional. For independents built around hospitality and experience, that cultural shift can be just as damaging as the financial side.

Rosalind Catto, business advisory partner and tourism expert at Johnston Carmichael

While the plans are nothing new, they are being considered at a time when the UK hospitality sector is already under significant pressure. 

Operators are facing rising business rates, escalating energy costs, increased employment expenses and growing tax liabilities. The sector already makes a substantial contribution to the public finances through business rates, employment taxes and VAT. At 20%, VAT on accommodation remains notably higher than in competing European destinations such as France, Italy, Spain and Portugal, where lower rates are often applied to support tourism. Against this backdrop, there is concern that an additional levy could place the UK at a further competitive disadvantage.

There are also worries about the potential impact on consumer behaviour. Increasing the overall cost of overnight stays may discourage domestic travel, particularly for families, creating risk as the sector continues to recover and rebuild demand.

For smaller operators, the burden may be even greater. Businesses that are not VAT registered could face disproportionate challenges around administering the levy. Updating booking systems and managing compliance will inevitably create additional work and cost, at a time when margins are already tight.

That said, there is recognition that a visitor levy can deliver benefits if designed and implemented effectively. To secure the support of accommodation providers more broadly, transparency will be essential, with clear evidence that revenues are being reinvested into local infrastructure, services and tourism-related initiatives.