London Moves Closer to Tourist Levy Implementation
Chancellor Rachel Reeves is poised to grant London Mayor Sadiq Khan the authority to implement a tourist tax on overnight visitors to the capital. This significant power shift forms part of the English Devolution and Community Empowerment Bill currently progressing through Parliament.
The proposed levy could generate up to £240 million annually for London's economy, according to estimates. This development comes as London recorded 89 million overnight stays in 2024, yet remains the only G7 nation where local authorities cannot implement tourist taxes.
How Would the London Tourist Tax Work?
The Greater London Authority commissioned thinktank Centre for Cities to examine successful models from other global cities. Their research revealed three primary approaches used across G7 cities including Paris, Munich, Milan, Toronto, New York, and Tokyo.
New York City and Toronto employ percentage-based levies on accommodation bills, with New York raising approximately £493 million yearly through an average nightly charge of £14.86 per visitor. Tokyo uses a flat fee system, generating £35 million despite having the highest number of overnight stays.
The Centre for Cities briefing suggests London would be better suited to either a percentage or flat fee system, as Britain lacks the statutory national hotel rating system found in France and Italy.
Previous GLA estimates from 2017 indicated that a £1 daily levy could raise £91 million, while a five percent charge could generate the full £240 million potential.
Economic Benefits and Global Comparisons
Andrew Carter, Chief Executive of Centre for Cities, emphasised the benefits of adopting a tourist levy. "Many Londoners have paid this kind of levy on their own trips to European cities such as Barcelona, Milan or Paris," he noted. "London is the largest city in the G7 without one."
The research indicates that London would unlikely experience significant visitor drops with a reasonably priced levy, as travellers show less sensitivity to additional charges in popular destinations.
The proposed system would mirror Scotland's approach, where Edinburgh, Glasgow and Aberdeen are introducing percentage-based levies on overnight stays in hotels, B&Bs and short-term rentals.
Key advantages include:
- Flexibility to adjust rates according to demand
- Potential to boost tourist economy infrastructure
- Creation of additional revenue streams for local government
- Incentive to grow London's visitor economy
A spokesperson for the Mayor's office cautiously welcomed the potential changes, stating: "The Mayor has been clear that a modest tourist levy, similar to other international cities, would boost our economy, deliver growth and help cement London's reputation as a global tourism and business destination."
Next Steps and Existing Schemes
While the Chancellor is expected to announce the move in coming months, no formal decision has been confirmed. A Ministry of Housing, Communities and Local Government spokesperson noted that places can already implement levies through the Accommodation Business Improvement District model.
Richmond Council is currently exploring this option for attractions including Hampton Court Palace and Kew Gardens. Should a London-wide tourist levy be introduced, existing local schemes would likely be discontinued.
The devolution of tourist tax powers represents what experts hope will be the beginning of broader fiscal devolution to the capital, providing London with more tools to accelerate economic growth.
