UK holiday tax could cost 33,000 jobs and reduce tourism spending, warns Oxford Economics
Proposed plans to introduce a “holiday tax” in England could put up to 33,000 tourism jobs at risk and cut the Treasury’s income by around £700m, according to new analysis which has fueled opposition from the tourism sector.
Research by Oxford Economics, commissioned by UKHospitality, suggests that giving county mayors the power to charge tourists could have a material negative impact on tourism demand, spending and wider economic activity.
Under the government’s proposals, mayors will be able to introduce a property tax on overnight stays in hotels, guesthouses, hostels and holiday homes, with the money collected earmarked for transport and infrastructure projects. The tax rate will be determined locally, and usage may be optional.
The worst-case scenario modelled, a 5 per cent accommodation tax, would lead to a £1.8 billion drop in tourism spending by 2030 and the loss of 33,000 jobs across the sector. The same situation is expected to reduce overall tax receipts by £688 million, reflecting lower economic activity.
Other models also indicate significant effects. A flat rate of £2 per person per night could reduce spending by £846 million and lead to 16,000 job losses, while a £2 per room tax would still result in an estimated 7,000 job losses and a £400 million drop in tourism spending.
Matthew Dass of Oxford Economics said the policy risks weakening the UK’s competitive position as a destination, particularly given the current 20 per cent VAT rate applied to hospitality services.
“Additional taxation will also weaken the country’s competitiveness,” he said, warning of wider negative effects on the economy.
Leaders across the travel and leisure sector have reacted strongly to the proposals, saying the extra costs will deter domestic and international visitors at a time when the industry is already under pressure.
Allen Simpson, chief executive of UKHospitality, said the money would “increase costs for Brits, make accommodation more expensive and destroy tourism”.
Workers warn that reduced visitor numbers will not only affect hotels and accommodation providers, but will also have negative effects on the entire local economy, especially in regions that rely heavily on tourism for employment and investment.
Simon Palethorpe, chief executive of Haven Holidays, said the tax would discourage domestic travel and reduce the economy in areas with little employment.
Meanwhile, Fiona Eastwood, head of Merlin Entertainments, said the proposals risked putting many families out of work for short breaks, while Hilton chief executive Simon Vincent warned the move could make the UK less attractive compared to competing destinations.
The government has set this policy as a way to give local leaders greater control over the funding of infrastructure and public services, especially in areas with high tourist populations. However, critics argue that economic trade-offs may outweigh the potential benefits.
The consultation on these proposals, which discussed different structures of levies and rates, was completed last month, and the government is yet to confirm where it stands.
The debate comes at a time when the hospitality sector is already facing a difficult operating environment, including rising employment costs, high business rates and consumer confidence.
For policy makers, the challenge lies in balancing the desire to generate more local income with the need to maintain the UK’s competitiveness as a tourism destination.
Industry leaders are urging the government to instead focus on ways to encourage growth, increase the number of tourists and support investment, rather than introducing additional costs that could suppress demand.
As tourism plays an important role in the regional economy and employment, the outcome of the policy debate is likely to have far-reaching implications, not just for the sector itself, but for the wider UK economy.
