English cities move towards ‘hotel tax’ to plug hole in state funding

English cities are moving towards introducing voluntary tourism taxes as the hotel industry seeks to boost visitor numbers and plug holes in state funding, with the first levy set to be raised in the new year.

Hotels in Liverpool have agreed to pay a ringfenced tax that will fund the development of the local tourism sector through marketing and events. Manchester’s hoteliers have been consulted on a similar idea and Leeds is also interested, according to officials.

The plans would create new hotel partnerships — known as accommodation business improvement districts (ABIDs) — with the power to collectively raise and spend levies on promoting local tourism.

The proposals build on similar existing partnerships, business improvement districts (BIDs), which already operate nationally among retailers and some other sectors.

“Effectively it’s a tourism tax,” said Bill Addy, chief executive officer of Liverpool’s existing BID, of the new levy, but one directly managed by businesses at a time when “the pressure on the public purse is acute”. 

Liverpool city council used to spend £1mn a year attracting major events prior to the austerity measures first introduced by central government more than a decade ago, he said. But that funding has since been cut as the council has sought to save money.

Addy said the new levy was “vital if we are to attract investment, support the visitor economy and maintain the public realm”.

A ballot of Liverpool hoteliers held in September resulted in an 84 per cent vote in favour of the levy, it was announced this week. It is expected to come into effect in January and would be applied to hotels and serviced apartments with a “rateable value” — the calculation used by the government to apply business rates — of more than £45,000, raising about £4.5mn over five years.

Some hoteliers would pass the cost of the levy on to customers, while others may absorb the payment in order to improve occupancy rates, said people familiar with the idea.

Earlier in November the Manchester Hoteliers’ Association voted on a similar proposal. The results have not yet been announced but, if agreed, the levy is expected to raise about £4mn a year through a £1 per night charge on hotel stays.

When discussed by Manchester city council’s executive in September, officials said the tax would provide “additional funds” for marketing campaigns to attract more visitors to the city and keep streets cleaner.

Some hoteliers expressed doubts, however. Dermot Crowley, chief executive of Dublin-based Dalata Hotel Group, which operates two hotels in Manchester city centre, said he was “nervous about any increased tax on tourism” as the sector is hit by soaring energy and labour costs.

He added that hotels were already making “a very significant contribution” to the local economy through business rates and one of the highest VAT rates in Europe.

Scotland’s first minister Nicola Sturgeon said in September that legislation allowing councils to levy hotel stays would be laid in the new year, while the Welsh government is consulting on similar plans.

However, Kate Nicholls, chief executive of UK Hospitality, an industry body, said the English idea was different. “It’s essentially the businesses themselves saying ‘we need to fund something to look after what’s going on in the city centre’,” she said.

Nicholls said the sector was opposed to levies that would be used for councils to pay for “all sorts of services that are normally funded by general taxation, and not just to help the tourism sector”.

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