The government’s announcement that English mayors will be given powers to introduce a new levy on overnight stays marks a significant change for the hospitality and tourism sector.
For accommodation providers, the key issue is not simply the introduction of a levy, but how it is designed, administered and ultimately reinvested.
While the policy is being positioned as a way to generate additional investment in local economies, the implications for businesses need careful consideration.
Who ultimately bears the cost of the new tourist tax?
A levy charged as a percentage of accommodation costs could put further pressure on already tight margins if businesses are unable to pass the full cost on to customers.
Equally, passing the cost on through higher prices could affect demand, particularly among budget-conscious families, domestic tourists and businesses operating in highly competitive markets.
What are the considerations of the tourist levy being implemented?
There are also some important practical and financial considerations:
- Pricing and margins: Businesses will need to assess whether the levy can be passed on without adversely affecting occupancy and profitability.
- VAT: The interaction between the levy, accommodation charges and VAT will need to be clearly understood once the detailed legislation is available.
- Cash flow and administration: Operators may face additional reporting, collection and compliance responsibilities.
- Seasonality: For businesses already relying on shoulder-season trade, even relatively small increases in the cost of a stay could influence booking decisions.
- Competitiveness: Businesses will need to consider how their destination compares with neighbouring areas and other UK and European destinations.
- Investment: Perhaps most importantly, there needs to be transparency around how the additional revenue is reinvested and whether that investment genuinely benefits the local visitor economy.
There is a legitimate argument that visitors should contribute towards the infrastructure and services they use. However, the success of any levy will ultimately depend on how it is structured and whether the economic benefits outweigh the additional cost.
As further details emerge, we’ll be looking closely at what the proposed levy could mean for accommodation providers, tourism businesses and the wider local economy and what businesses can do to prepare.
If you have any further questions on the new tourist levy or how it could affect your business, please get in touch with Andy Turner or your usual Mercer & Hole contact.
