Migrant hotels will be exempt from the proposed uncapped visitor levy on accommodation, while families staying in hotels, bed and breakfasts and holiday lets could face higher bills under powers given to regional mayors.
The Department for Housing, Communities and Local Government has said taxpayer-funded hotels housing asylum seekers are classed as “temporary accommodation” and would therefore not be covered by the charge.
The exemption has prompted criticism from the hospitality industry and the Conservatives, amid suggestions that it could make accommodating asylum seekers more attractive to hotels than taking bookings from paying guests.
The levy will be available to England’s 14 regional mayors from 2028. Despite objections, Greater Manchester mayor Andy Burnham has backed a percentage-based charge rather than a flat fee, with Labour-run areas expected to consider a rate of about 5 per cent.
Under the plans, the charge would be calculated on the cost of accommodation, excluding food and drink, and would not be subject to a cap. A family paying £2,000 for a hotel room or rented cottage could therefore face an additional £100 bill if a 5 per cent rate were imposed.
Chris Philp, the shadow home secretary, said: “It is utterly outrageous that families saving up for a break and struggling hospitality businesses will be hit with another tax, while hotels being used to accommodate illegal immigrants are exempt.
“British taxpayers should not be treated as a cash machine as asylum hotels get special treatment.
“Labour must explain why they think ordinary families should pay this tax but the asylum system should not.
“The answer is not another stealth tax on British families. We need to deport all illegal immigrants which would allow us to end the farcical hotel use entirely.”
The Government is attempting to reduce its use of asylum hotels by moving migrants into privately rented accommodation and former military bases. There are currently 160 migrant hotels across the UK, while 73,068 people are housed in other forms of taxpayer-funded accommodation.
Hospitality industry warns of higher costs
Business groups have warned that the levy could damage tourism and employment at a time when hospitality companies are already facing rising costs.
Oxford Economics figures cited by UK Hospitality estimate that, if the full impact of a 5 per cent charge is felt by 2030, tourism spending could fall by £1.8 billion. The forecast also includes 11.9 million fewer nights spent in accommodation, a £101 million reduction in direct investment from hospitality and tourism businesses, and 33,000 lost jobs.
The analysis suggests the Treasury could receive about £688 million less in tax receipts, despite the additional revenue available to local authorities.
Tina McKenzie, national chairman of the Federation of Small Businesses, described the prospect of an uncapped levy as “a kick in the teeth for the hospitality industry”, saying small businesses were already dealing with a “deluge of cost rises”.
Allen Simpson, chief executive of UK Hospitality, said: “If you only devolve one tax-raising power, local mayors are going to pull that lever till it snaps.”
He said UK holidays were already more expensive than those in other countries because of the 20 per cent VAT rate, while visitor taxes in Paris, Rome and Berlin were capped. ABTA warned that the measure would “further damage the competitiveness” of local tourism, while Whitbread, which owns Premier Inn, called it “hugely damaging”.
Mr Burnham introduced a £1-plus-VAT city visitor charge per room, per night in Greater Manchester in 2023. His ally Steve Rotheram set a £2 rate in Liverpool last year, while Edinburgh introduced a 5 per cent charge for stays of up to five nights at the start of the summer.
A £1.30-a-night visitor levy is due to come into force in Cardiff in April. Under the new arrangements, popular areas without a mayor, including the Cotswolds, could gain the power to impose a charge following a future reorganisation of local authorities.
A No 10 spokesman said the policy reflected the Government’s decision to trust local leaders with decisions affecting their areas.
Communities Secretary Angela Rayner said the levy would allow areas to “celebrate the tourism that comes to their areas, but then redirect that into their local area”.
