Rachel Reeves weighs ‘hotel tax’ as treasury battles to fill funding gap
Britons and overseas tourists could find themselves paying “hotel tax” every night you stay, under Treasury proposals designed to bolster the public purse as borrowing costs continue to rise.
The potential tax, which is part of a “modeling exercise” by officials, mirrors the tourist tax in countries such as France, where the nightly charge ranges from less than £1 in a campsite to more than £12 in a five-star resort.
Chancellor Rachel Reeves, who introduced £40 billion in tax increases in last year’s Budget, has repeatedly insisted there will be no repeat of that increase. However, falling bond prices and high levels of government borrowing since 2008 mean they may soon be forced to find new sources of revenue. Analysts say unless taxes rise or spending falls, Reeves risks breaking his self-imposed fiscal rules – a scenario that could undermine market confidence in the stability of the UK economy.
Under the nationwide plan, domestic travelers and foreign tourists will pay extra for their overnight stays. This comes as several parts of the UK are testing local levies. Wales is proposing a £1.25 nightly charge for tourists, while Edinburgh is set to introduce a 5 per cent accommodation tax from July 2026. According to the TaxPayers’ Alliance, rolling out the Welsh model across England would benefit almost -£560 million per year. Adopting something closer to the French system, however, could yield more than £1 billion.
Hoteliers warn of devastating consequences. Sir Rocco Forte, whose eponymous hotel group is world-famous, says the move will be a “dangerous new tax” coming in addition to increases in employers’ national insurance, increases in air travel taxes, and the withdrawal of VAT refunds for foreign tourists. He believes it will affect the entire tourism supply chain – from restaurants and museums to taxi drivers and shops – as tourists spend money to offset the high cost of accommodation.
Reeves, who is currently on a high-profile visit to China aimed at attracting inward investors, has come under fire during his trip. Gilt yields have risen in recent days as so-called “bond market watchers” seek higher returns to hold UK debt, which raises the government’s borrowing costs. Meanwhile, the pound fell below $1.22, a drop that makes Britain cheaper for overseas travelers but also raises concerns about foreign-driven inflation.
If borrowing costs remain high, the Treasury may look beyond the hotel tax to keep the chancellor’s financial promises intact. Additional key measures may include increases in corporate taxes or cuts to social and disability benefits. Observers note that the spring statement, scheduled for March 26, could be an emergency budget if market conditions fail to improve.
Sir Rocco Forte’s criticism of the hotel tax reflects growing frustration in the tourism sector, which says hospitality already carries high taxes and regulatory costs. He points out that several other countries impose a tourist tax that is paid to improve tourist services. In contrast, the UK plan, he fears, will simply put money into filling a “black hole” in public finances.
Despite the appeal, Treasury insiders remain tight-lipped, calling talk of a new hotel tax “speculation.” The spokesman stressed that the chancellor would stick to his financial rules and continue to hold back on spending. Ministers plan to review spending in June to “cut waste,” but industry observers say the new tourism tax risks undermining one of the UK’s most active sectors.
Ultimately, whether the chancellor can balance the books without new tax increases will depend largely on market sentiment. As the cost of government debt rises, so does the political imperative to find sources of revenue that avoid a repeat of last fall’s big tax hike. The final decision may depend on whether the increasingly value-conscious tourism market is willing to pay an extra nightly charge for the privilege of visiting Britain’s shores.
