The rumoured introduction of a tourist tax in London has sparked fierce opposition from business leaders, who warn it could deliver a fatal blow to the capital's already struggling hospitality sector.
Christmas Cheer Replaced by Business Closures
Tony Matharu, Chairman of Central London Alliance CIC, has issued a stark warning that the proposed levy could force numerous hospitality businesses to close permanently. Rather than the festive atmosphere London typically enjoys during December, the city might witness the rattle of shutters slamming shut for the last time from establishments unable to bear another tax burden.
Matharu emphasised that the hospitality sector repeatedly proved itself as London's saviour, particularly during the COVID-19 pandemic when it provided essential services to care workers, doctors and emergency service personnel. Now, these same businesses face an existential threat from what he describes as ignorant self-harm combined with stubborn economic illiteracy.
Competitiveness Crisis Deepens
The UK is already facing significant challenges to its global competitiveness according to industry analysis. A series of tax changes including:
- Abolition of non-dom status
- New inheritance tax rules
- Rising capital gains tax rates
- Potential mansion tax
have collectively made Britain less attractive to international investors and high-net-worth individuals. This comes at a time when competitor cities in the UAE, Switzerland, Singapore and Italy are actively attracting wealth and business with favourable tax regimes.
The departure of high-profile figures like Lakshmi Mittal, the UK's richest man, to Switzerland reflects a worrying trend that London cannot afford to ignore. Government data has been accused of misrepresenting the number of entrepreneurs leaving Britain, with Business Secretary Peter Kyle himself acknowledging droves are departing because of higher tax burdens.
Hospitality Sector Already Overburdened
UK Hospitality analysis reveals that a 5% overnight tourist levy, applied on top of the existing 20% VAT rate, would push the effective tax burden on accommodation to approximately 27%. This far exceeds rates in competing destinations and could cost British holidaymakers an additional £518 million annually.
Matharu highlighted that in the last budget alone, £3.4 billion was added to the hospitality sector's tax bill, meaning 75% of the industry's profits now return to the Exchequer in some form of taxation. The sector already represents the third largest employer in the country and provides opportunities to a broad range of talent.
Unlike European counterparts where tourist taxes sit alongside significantly lower VAT rates - Germany at 7%, Ireland at 9% - London would lack this competitive cushion. The combination of rising business rates, spiralling energy costs (the highest in the world), higher employers' national insurance and the proposed removal of Business Property Tax Relief is creating unsustainable pressure.
Call for Smarter Policy Approach
The Central London Alliance argues that rather than implementing damaging new taxes, the government should recognise hospitality as a core driver of London's identity, community and economy. They're calling for fairer, smarter policies that protect London's economic core instead of punishing businesses for having buildings and workers.
Matharu reminded the Chancellor of her promise at last year's CBI Conference, where she stated she is not coming back with more borrowing or more taxes in her first budget. He emphasised that the hospitality sector led the country out of the last recession and supported emergency workers throughout the pandemic.
With a quarter of London Chamber of Commerce and Industry members surveyed indicating they would either shut down or sell their businesses as a result of just one proposed government measure, the Alliance warns that a tourist tax could be the final straw for many establishments. They urge policymakers to avoid measures that risk undermining London's recovery, competitiveness and long-term prospects.
