Britons and overseas visitors may soon find themselves paying a “hotel tax” on every overnight stay, under Treasury proposals designed to shore up the public purse as borrowing costs continue to climb.
The potential levy, part of “modelling exercises” carried out by officials, mirrors the 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 increases at last autumn’s Budget, has repeatedly insisted there will be no repeat of those hikes. However, tumbling bond prices and the highest government borrowing rates since 2008 mean she may soon be forced to find new revenue streams. 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 the UK’s economic stability.
Under the prospective nationwide scheme, both domestic travellers and foreign visitors would pay an added charge on their nightly stay. This comes as several parts of the UK explore local tourism levies. Wales is proposing a nightly fee 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 net about £560 million a year. Adopting something closer to the French system, however, could yield more than £1 billion.
Hoteliers warn of detrimental consequences. Sir Rocco Forte, whose eponymous hotel group has a global footprint, argues the measure would be a “pernicious new tax” coming on top of increases in employers’ national insurance, rising air travel levies, and the scrapping of VAT refunds for foreign tourists. He believes it would hit the entire tourism supply chain — from restaurants and museums to taxi drivers and shops — as visitors rein in spending to offset the higher cost of accommodation.
Reeves, currently on a high-profile visit to China aimed at attracting inward investment, has come under fire over the timing of her trip. Gilt yields have soared in recent days as so-called “bond market vigilantes” demand higher returns for holding UK debt, pushing up government borrowing costs. Meanwhile, the pound fell below $1.22, a decline that does make Britain cheaper for overseas travellers but also raises concerns over import-driven inflation.
If borrowing costs remain elevated, the Treasury could look beyond a hotel tax to keep the chancellor’s fiscal pledges intact. More substantial measures might include an increase in corporation tax or cuts to welfare and disability benefits. Observers note that the spring statement, scheduled for 26 March, could become a de facto emergency budget if market conditions fail to improve.
Sir Rocco Forte’s condemnation of the hotel levy reflects mounting exasperation in the tourism sector, which contends that hospitality already shoulders heavy taxes and regulatory costs. He points out that several other countries that impose a tourist tax ring-fence the proceeds to enhance visitor facilities. By contrast, the UK’s plan, he fears, would simply funnel the proceeds into filling “the black hole” in public finances.
Despite the outcry, Treasury insiders remain tight-lipped, calling talk of a new hotel tax “speculation.” A spokesperson has insisted the chancellor will stick to her fiscal rules and continue to pursue spending restraint. Ministers plan to review expenditures in June to “root out waste,” but industry observers argue that a new tourism levy risks undermining one of the UK’s most vibrant sectors.
In the end, whether the chancellor can balance the books without a fresh round of tax hikes will largely depend on market sentiment. As the cost of government debt climbs, so does the political imperative to find revenue sources that avoid repeating the hefty tax rises enacted last autumn. The final decision could hinge on whether an increasingly value-conscious travel market is willing to pay an extra nightly charge for the privilege of visiting Britain’s shores.
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Rachel Reeves weighs a ‘hotel tax’ as treasury battles to fill funding gap