Why is the introduction of a tourism tax – more popularly known as a bed tax – such bad news for the tourism industry?

Sir Michael Lyons, who is leading an Inquiry into new sources of funding for local authorities, said in an interim report that he is looking at the possibility of introducing a bed tax.

The industry must try to pre-empt any such recommendation when he reports later this year. It’s bad news for a number of reasons:

1. Why pick on the hospitality industry and on overnight visitors – both domestic and from overseas? Hotels already pay their share of business rates and local authority charges, which are reflected in their prices. It would be more equitable to increase general taxation.

2. A double iniquity is that hotel guests comprise less than 40 per cent of overnight accommodation stays. Some 60 per cent of people staying in rented accommodation, second homes, timeshares, camping or staying with friends and relations would almost certainly have to be excluded from any tax, due to the practical difficulties of collecting from these categories in any new regulation.

3. The tax will increase prices. The Treasury will insist that a bed tax at the suggested level of 5 per cent would be subject to VAT. So a hotel stay in an average £60 (exc VAT) UK regional hotel room would carry a total tax of just over £14 per night, giving an overall tax rate of 23.6 per cent. This would add almost £100 to the bill of a family of four staying for a week in a room charging this rate.

4. It will lose us customers. Research by Nottingham University shows that a 1 per cent rise in prices relative to other countries leads to a 1 per cent decrease in international tourism. Research by VisitBritain gave a higher (1.4:1) loss ratio for international tourism. Applying the Nottingham University research, a bed tax applied across the UK could reduce international tourism revenues to the UK by about £220m and domestic revenues by around £325m, costing the Exchequer over £200m in lost taxation, with nearly half lost on international tourism being totally irrecoverable.

5. It is unfair. If local authorities are given powers to raise a bed tax it is inevitable that there will be differences in approach and tax levels between them. A bed tax applied by some local authorities at a certain level and not by others would be potentially damaging to businesses in affected areas – yet businesses have no vote to try to overturn any local authority tax-making decisions.

These are significant objections, which the BHA has already submitted to the inquiry. It is good that the Tourism Alliance has also submitted its objections. We hope Sir Michael takes note but we await the outcome with some concern.