The Mayor of London has cautiously welcomed reports that he will be granted the power to impose a tourist levy on visitors staying overnight in the capital, and a report outlines how such a tax could work in London.
Chancellor Rachel Reeves is expected to give Sir Sadiq Khan and other civic chiefs the authority to do so through the English Devolution and Community Empowerment Bill, which is currently going through parliament. Sir Sadiq has been vocal in calling for such powers to be devolved, with estimates suggesting a ‘tourist tax’ in London could raise up to £240 million a year. In 2024, London saw 89 million overnight stays.
Currently, England is the only country among the G7 where national government prevents local authorities or Mayors from implementing tourist levies. Scotland and Wales have both recently introduced different types of taxes on overnight visitors, with local authorities in the former able to set their own levy as a percentage rate of the daily bill for accommodation. From 2026, Welsh authorities will be able to collect £1.30 per night from visitors.
What does Sir Sadiq Khan think of the proposal?
Earlier today the Mayor’s office appeared to welcome the proposed changes but said they would not comment on “speculation” and would wait before making any concrete preparations.
A spokesperson for the Mayor of London told the Local Democracy Reporting Service (LDRS): “The Mayor has been clear that a modest tourist levy, similar to other international cities, would boost our economy, deliver growth and help cement London’s reputation as a global tourism and business destination.”
How would it work in London?
The Greater London Authority (GLA) recently asked the Centre for Cities thinktank to probe promising areas for further devolution in the capital. In a briefing released last week, the authors noted that three types of tourist levy exist across the G7 primary cities – Paris, Munich, Milan, Toronto, New York, and Tokyo.
New York City and Toronto impose percentage rate levies on stays, with the former raising £493 million every year with a £14.86 average nightly rate per visitor.
Tokyo has a single flat fee for all bookings, which raises just £35 million despite the Japanese capital having the highest number of overnight stays of any primary city. In France and Italy, the amount paid depends on the location, type of accommodation and official ‘star rating’. London would be more suited to either a percentage or flat fee system, the authors suggested, as Britain “lacks a statutory national ‘star’ system for hotels present in France and Italy”.
The GLA has previously estimated in 2017 that a £1 a day levy, including international visitors, could raise £91 million, and that a five per cent levy could raise £240 million.
The Centre for Cities briefing also concluded that “London is unlikely to see a significant drop in visitors if it introduces a levy at a rate comparable to peer primary cities”. This is due to research showing that visitors are less sensitive to levies in more popular destinations.
Would London benefit?
The Centre for Cities suggests that, if implemented effectively, a tourist levy would boost both economic growth and improve infrastructure and the business environment in London.
The fact that the Mayor would have control over the tax rate and use of revenues would also allow them to reduce or increase rates more swiftly in response to visitor patterns. It cites Toronto increasing theirs ahead of next year’s World Cup in North America.
Andrew Carter, Chief Executive of Centre for Cities, told the LDRS: “It’s welcome that the Government is considering giving London and other big cities the power to implement a tourist levy.
“Many Londoners have paid this kind of levy on their own trips to European cities such as Barcelona, Milan or Paris. London is the largest city in the G7 without one. The model the Government should adopt is already under way in Scotland, where Edinburgh, Glasgow and Aberdeen are introducing levies valued at a percentage rate on overnight stays in hotels, BnBs and short-let accommodation.
“A key benefit of this approach is that it is flexible, and the rate can rise and fall depending on the demand for overnight stays. A tourist levy would benefit the capital’s tourist economy, provided the revenues go to local government – ideally split between City Hall and the boroughs – and are not ring-fenced by central government for specific purposes.
“A local, flexible tourist tax would give the Mayor of London and the boroughs an incentive to grow London’s visitor economy. More hotel rooms and more overnight visitors would generate more revenues and more jobs.
“Hopefully, introducing a tourist levy is the start of a bigger programme of devolving tax and spending powers to the capital. London is the most productive big city in the UK, and devolving more fiscal powers would give the capital more policy tools to accelerate growth in the economy.”
What’s next?
While the Chancellor is widely expected to announce the move in the coming months, nothing has yet been formalised.
A Ministry of Housing, Communities and Local Government spokesperson told the LDRS: “We are always open to hearing views from local leaders on issues like this. Places can already choose to introduce a levy on overnight stays through the Accommodation Business Improvement District (ABID) model.”
