London tourism tax capped at 5%, mayor says

London's tourism levy will be capped at 5% of the cost of accommodation, the mayor has said.

Sir Sadiq Khan said he "strongly" welcomed plans unveiled by the government on Thursday granting mayors in England the power to set an overnight visitors' levy - often dubbed as a tourism tax.

The government has not set a cap on the levy percentages mayors can implement, but Sir Sadiq told BBC London that the capital's would not be above 5% of the cost of an overnight stay - the exact figure has not been determined.

Industry bodies said any levy could put tourists off visiting London, while Conservative-led Westminster Council called for boroughs to keep half the funds raised in their area.

Housing Secretary Angela Rayner provided further details on how the new powers will work following a virtual meeting of England's regional mayors.

Under the plans, local leaders will be able to bring in an uncapped levy as a percentage of the cost of hotels, bed and breakfasts and other types of accommodation rather than a flat fee.

A government spokesperson said it would protect budget holidays "by making sure low-cost accommodation always pays lowest levy".

"Hotels and other accommodation providers will be responsible for paying the levy to strategic authorities and mayors," they said.

A formal bill will be introduced in Parliament to establish the legal framework for the levy.

The mayor has not revealed the full details of how the scheme will be implemented in London, or exactly how much it will be - just that he will not go above 5%.

Sir Sadiq told BBC London: "I fully support the government's decision, after years of lobbying, to give us the same powers that other cities, from New York to Los Angeles, from Chicago to Paris […] have, which is the ability to raise a levy on those who come to our great city.

"We've got to invest in making sure that [our] city continues to be attractive."

He said he would "not do what New York has done", where a similar levy is set at 14%.

"I'll agree, because it's really important to reassure these industries, that we're not going to have a levy of more than 5%," the mayor added.

The levy could be in place by March 2028, according to a government document published in July, when Prime Minister Andy Burnham reiterated his commitment to the policy as part of his wider devolution agenda.

Analysis released in January by Central London Forward found a hypothetical 3% tourist levy in London could raise more than £350m.

Charges of a similar nature already exist across the world, with the revenue used to fund local services.

In Paris, they opted for flat fees ranging from €0.65-€15.60 (£0.56–£13.39) based on the type of accommodation.

Amsterdam charges overnight visitors at a rate of 12.5% of the cost of their accommodation.

Ministers and the mayor say the levy brings English cities more in line with European counterparts.

However, Westminster Council's leader Paul Swaddle said VAT rates for hotels in other European cities were "significantly lower and the total tax burden is lower", so the tourist levy could make Westminster hotels less competitive.

In France, which has the same 20% standard VAT rate as the UK, hotel stays are taxed at a 10% reduced rate.

Several other European countries apply a similar reduced VAT rate to hotel stays but often apply local levies. Amsterdam recently changed the rules to apply its full VAT rate to overnight stays.

Groups representing the tourism trade have warned about the impact of the tax and called for consistency in how it operates across different regions.

Allen Simpson, chief executive of the trade body UKHospitality, said a tourism tax introduced in Edinburgh in July was "already having damaging effects" and said jobs could be at risk in communities that rely on tourism and hospitality.

He claimed the levy would add about £100 to £120 on average to the cost of a family holiday in England, amid fears mayors would make use of the fact there is, in theory, no upper limit for the levy.

"I would say to those people in these communities that their jobs are now at risk," Simpson told BBC Radio 4's Today programme.

John Dickie, chief executive of lobby group BusinessLDN, said: "An overnight stay levy has the potential to benefit London and businesses but only if it is used to promote economic growth and the industry has a meaningful say in how the funds raised are used."

He added "great care" was needed in establishing what level to charge and when to introduce it.

London Councils, a cross-party body representing the capital's 33 local authorities, has called for 50% of the levies to stay within the borough where they were raised.

"If the levy is to be raised, local authorities need to keep at least half to be spent locally for services that benefit visitors, such as keeping the streets clean and safe," Westminster's leader Swaddle said.

He said the cost of supporting the "visitor and commuter economy in Westminster" was estimated at £115m.

Sir Sadiq told BBC London: "I'll be working with councils, working with businesses, working with hospitality, working with hotels, working with Airbnbs to get the best possible scheme.

"We're going to work with them in how we design the scheme, in how we collect the revenues, and how we spend any money that's raised."

To international visitors who spoke to the BBC on Oxford Street, news of a potential tourist tax brought little cause for concern.

Stavroula, visiting from Cyprus, said: "I don't think it's going to make any difference... things will remain the same, and maybe get better because of the income from the tax."

This view was shared by other travellers, who see room levies as standard practice in major cities.

Isaac, from Malta, said that such charges were already common across Europe so he "wouldn't mind" if London introduced the charge.

Evie Ramsbottom said: "I don't think 5% is big enough of a levy to put people off going. I think people just pay the money if they want to go somewhere."

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