The Chancellor’s recent Budget dealt a severe blow to the hospitality industry, which took the shine off the government’s announcement that it is not in favour of a tourist tax – itself a notable lobby victory.

Earlier on Budget day, the Lyons Inquiry into the funding of local government in England had recommended that the government should consult on the costs and benefits of giving local authorities the power to levy taxes on tourism, including a possible tax on accommodation.

However, Phil Woolas MP, the local government minister, announced that while the Inquiry had put the case for consultation, “we are not … inclined to focus on this area. The government does not intend to introduce a tourism tax.”

This was welcome news indeed and proof that positive lobbying can work.

For the last three years, the BHA has consistently led the opposition to the introduction of a tourist tax because of the damage it would have caused UK tourism and the unfairness of a situation in which one local authority might decide to introduce the tax and another authority might not. Businesses in the area where the tax was introduced would have been heavily disadvantaged.

However, the budget also had some bad news which, for those who are investing in the hospitality industry, was as unwelcome as the introduction of a tourist tax.

The withdrawal of the Building Allowance, which has helped to drive the industry’s current expansion, and reductions in other capital allowances, are likely to cost hospitality millions of pounds in lost tax concessions.

Together with the increase in the top rate of tax for small businesses from 20p to 22p by 2009, it’s understandable that many business owners are feeling aggrieved because the measures will cut across the entire industry, including hotels, restaurants, and leisure attractions. The Chancellor’s decision is distinctly un-business friendly.

The Building Allowance is an efficient method of encouraging new build and, until now, has been instrumental in helping to make the construction of new hotels and extensions, new restaurants and new attractions more viable than they would otherwise have been. As most of these projects cost over £1m, the allowance has been significant, running well into six figures, and even more for bigger projects.

With these allowances disappearing, the cost of investment in the industry will be all the greater, making some projects totally unviable. This is surely not Gordon Brown’s intention, but that will certainly be the result.

On the tax increase in the top rate of small business tax, the Treasury estimates that it will yield some £820m in a full year. How much of this will be contributed by the hotel industry is not known but even at 10 per cent (a low estimate, given that there are over 50,000 hotels and a similar number of restaurants) it would take £80m out of the industry.

Combined, the measures will damage investment in hotels at a time when it is having to compete with ever stronger international competition.

Sometimes, it is difficult to understand the reasoning behind government thinking.