Tourist tax: what could it mean for hospitality businesses?

The Government’s recent announcement (September 2026) that English mayors will be given powers to introduce a levy on overnight stays as a percentage of the accommodation bill per night, marks another challenge 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 and administered.

While the policy is being positioned by the government as a way to generate additional investment in local economies, the implications for businesses that provide accommodation need careful consideration.

Who ultimately bears the cost?

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 more budget-conscious families, domestic tourists. Given the government has said it will give discretion to local mayors or strategic authorities where there are no mayors, to decide whether to implement the levy or not, some locations may find they are subject to a higher cost than their near neighbours in a neighbouring region.

Visitors may decide to carry on visiting key cities and locations, but chose to stay outside of the city where the levy may not apply.

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 or profitability.
• VAT: The interaction between the levy, accommodation charges and VAT will need to be clearly understood once the detailed legislation is available.
• Administration: Operators may face additional reporting, collection and compliance responsibilities.
• Consistency and competitiveness: Hotels will need to consider how their destination compares with neighbouring areas and other UK and European destinations. A consistent approach across the UK, alongside a clear cap, could help provide greater certainty for businesses operating across different locations.
• Investment: There needs to be transparency around how the revenue generated from the levy is reinvested and whether such investment genuinely benefits the local visitor economy.
• Employment: There is also a wider question around the potential impact on jobs. Hospitality plays an important role in providing entry-level opportunities for young people and school leavers, with many starting their careers in hotels and other hospitality businesses. At a time when employers are already facing higher employment costs, including increases in the National Living Wage and employer National Insurance contributions, hotels will be considering carefully how any additional costs affect their ability to recruit and retain staff. If the levy becomes an additional cost that cannot be fully passed on to customers, it could place further pressure on already tight margins and, in some cases, affect a hotel’s ability to create an additional junior or entry-level role.

There is a legitimate argument to be made 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. The government will be keen to support small businesses in the sector and promote growth.

As further details emerge, we will all be looking closely at what the proposed levy could mean for accommodation providers, tourism businesses 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.