Staycations are already too expensive - the tourist tax will make it worse

Ministers claim to be searching for the magic growth lever that will finally pull the country in the right direction. But they are missing the most basic rule of government: first, do no harm.

Instead, this government has repeatedly made growth harder. It has piled pressure on businesses through higher taxes, heavier regulation and new employment costs, making it harder for firms to operate, invest and expand. Rather than growing, too many businesses are tightening their belts.

There are two main reasons for this. The first is that ministers appear far more interested in talking about workers than in understanding the people who actually provide the jobs. The Employment Rights Bill expanded trade union powers and increases in the minimum wage all point to a government that does not grasp the realities faced by employers.

The second is more fundamental. Labour remains wedded to the failed tax-and-spend model. It believes taxes should be levied so politicians can “invest” the proceeds, because, deep down, it thinks government is better at creating growth than businesses are.

This inclination is clear in the plan to introduce an overnight visitor levy, announced in the King’s Speech. A tourist tax is not a growth policy. It is a deterrent. Taxes change behaviour, and taxes on tourism are no exception. Cities such as Venice, Amsterdam and Barcelona have used tourist taxes to reduce visitor numbers. Britain should be doing the opposite. With a 20 per cent VAT rate already inflating the cost of tourism, the UK is already at a disadvantage. We should be encouraging more people to visit, not scaring off visitors.

The economic risk is substantial. TaxPayers’ Alliance research suggests that a visitor levy could cost the UK economy between £6 billion and £13 billion, depending on the rate imposed. Polling found that 28 per cent of Britons would consider holidaying elsewhere, or not holidaying at all, if the tax were set at £5. That rises to 39 per cent if the tax were set at £10. Meanwhile, 18 per cent said that any increase in the cost of a holiday in England caused by the new tax would stop them from booking.

Using VisitBritain figures, the scale of the threat becomes clear. In 2024, there were 107.9 million domestic overnight trips, with spending exceeding £33.4 billion. If even a modest visitor tax deterred domestic tourists, as polling suggests, it could result in a loss of around £6 billion and almost 19.5 million fewer overnight visits. A £5 levy could cost more than £9 billion, while a £10 levy could cost more than £13 billion.

There is a similar example in Wales. Polling suggests 16 per cent of people who would otherwise have taken an overnight holiday in Wales would no longer do so as a result of a tourist tax. Based on Welsh Government figures, that could cost an estimated £359 million in lost spending, even before accounting for international visitors or those who would cut back spending.

Ministers have dressed this up as a way to reinvest in local priorities and strengthen public services. But you do not create growth by making it more expensive for people to visit. A tourist tax would mean fewer visitors and weaker demand. This is the opposite of what the economy needs.

The government should abandon this disastrous tourist tax. More fundamentally, it should abandon the tired tax-and-spend approach that is undermining businesses across the country.

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Jonathan Eida is public affairs manager at the TaxPayers' Alliance.

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