Sadiq Khan could be set to benefit significantly as Chancellor Rachel Reeves prepares to greenlight a controversial ‘tourist tax’ in the upcoming Budget.
The new levy would allow mayors across England to charge hotel and bed-and-breakfast guests extra fees on their stays, potentially raising more than £500 million a year, with London alone expected to generate around £200 million.
Supporters of the measure, including Khan, argue that major global cities like Paris already have similar charges in place.
Manchester already imposes a business levy, showing the UK is far from alone in considering such measures.
Hospitality Industry Pushes Back Against New Charges
The hospitality sector, however, has warned that this move breaks previous government promises not to pursue a tourism tax.
Kate Nicholls, Chair of UKHospitality, slammed the idea as unfair, pointing out that British tourists alone account for hundreds of millions of hotel nights every year.
According to her, the policy risks simply acting as a hidden VAT increase for holidaymakers, driving prices up and worsening inflation.
The Wider Budget Picture: Filling a £40 Billion Black Hole
Ms Reeves faces immense pressure to fill a looming £40 billion budget shortfall.
After shelving plans to hike income tax—a move that would have conflicted with Labour’s election manifesto—she is now looking at smaller, creative revenue streams.
The proposed tourism tax is just one piece of a broader puzzle that also includes extending the freeze on income tax thresholds for two more years.
Ordinary Workers and Pensioners Could Feel the Pinch
While the government hopes to raise over £8 billion a year, ordinary Britons may see their wallets squeezed.
By the end of the decade, over 10 million people could be pushed into the top tax rate.
Couples could face a tax increase of £1,300, and minimum wage workers might pay an extra £137 annually.
Pensioners are also not immune, with plans to tax the full state pension for the first time by 2027-28, effectively offsetting any benefits they might receive elsewhere.
Sugar Tax Could Expand to Hit Milk Drinks
In addition to the tourism levy, Ms Reeves is reportedly planning to tighten the so-called ‘Sugar Tax’.
Around 200 milk-based drinks currently exempt could be hit with charges of 26p per litre.
Proposed threshold changes—from 5g of sugar per 100ml down to 4g—would expand the scope, potentially bringing a wider range of drinks into the levy.
The Soft Drinks Industry Levy was originally introduced in 2018 to tackle childhood obesity, targeting sugary pre-packaged beverages.
Milk-based drinks were excluded because of their nutritional value, but the new proposals could change that.
Industry Concerns and Public Reaction
UKHospitality has criticized the plans as yet another unexpected U-turn, highlighting that the government had reassured the industry just two months ago that no tourism tax would be introduced.
Critics warn that the policy could add strain to families already dealing with the cost-of-living crisis, while supporters argue it’s a necessary step to fund public services and local initiatives.
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