The Bed Tax: The Wrong Measure, for the Wrong Purpose, at the Wrong Time
As the Government urges the nation to prepare for crises, it risks undermining the very hospitality businesses that keep people safe, support essential workers and help London function. Central London Alliance is calling for democratic accountability, a proper economic and social assessment, and a fundamental rethink of the proposed Overnight Visitor Levy.
The timing could hardly be more relevant, given the Government’s contradictory stances.
On Thursday, 22 October, the Defence Secretary, Wes Streeting, urged the public to prepare for potential emergencies, including cyberattacks and disruption to essential services. The Government’s message was clear: national resilience matters, businesses and households must be prepared, and communities need to be able to withstand disruption.
Yet at the same time, the Government is advancing a policy that risks adding further pressure and is stimulating disruption to the hospitality businesses on which the country depends.
The proposed Overnight Visitor Levy – more commonly known as the bed tax – is the wrong measure, for the wrong purpose, at the wrong time.
The proposed bed tax is being advanced without a published, comprehensive assessment demonstrating its likely economic and social impacts, while the democratic scrutiny of how and where the tax could be imposed risks being pushed further down the line. For a policy that will affect businesses, jobs, investment and the wider visitor economy, that is simply not good enough.
When the country needed hospitality, hospitality stepped up
When COVID-19 struck, who stood up for the nation?
Medical professionals, care workers, pharmacists, and the hospitality providers who kept operating to provide accommodation, food and support for nurses, care workers and blue-light personnel. Hotels became an essential part of the country’s response, offering beds to those who needed to isolate, rest between shifts and enabling keyworkers to remain close to where they were working.
Hospitality was not simply an optional extra. It was part of the national emergency resilience infrastructure that helped the country through an unprecedented crisis.
Now, as the Defence Secretary warns that the country must prepare for future disruption, we should be asking a fundamental question: what happens when those same essential businesses are weakened by additional costs and can no longer afford to keep their doors open?
Nurses may need somewhere to stay close to a hospital. Police officers and other emergency personnel may need accommodation while supporting an operation. Care workers may need to remain near the people they look after. Is the Government really advocating that they should be taxed for occupying a bed when they are needed?
Hotel businesses cannot be expected to provide resilience for the nation while policy decisions make their own resilience increasingly difficult to sustain.
The bed tax is not the only pressure facing hospitality, but it would be another cost imposed on an industry already disproportionately grappling with employment costs, the highest level of taxation for any sector (82% of all profits given back to the Treasury verses a UK average of 50%), and increasingly punitive regulation leading to heightened levels of uncertainty. The potential consequences extend well beyond hotel owners: they reach workers, a massive range of suppliers and often businesses which rely on hotel patrons, including restaurants, shops, attractions, transport operators and the many small businesses and their suppliers whose livelihoods depend on the overnight visitor demand.
A country cannot sensibly talk about resilience while failing to consider the resilience of the businesses that help the nation and its people. The hospitality sector is the third largest employer in the country and often the fastest route to career growth of any sector, with low barriers to entry – ideal for the one million young people reduced to the label of NEETs and no longer seen as value drivers for the Government purported growth agenda.
1. A democratic deficit: powers before proper scrutiny
The first problem is the process.
The Government’s proposals aims to give mayors and other local leaders powers to introduce an Overnight Visitor Levy or bed tax. Ministers have presented this as part of a wider devolution programme, with decisions on whether to introduce a levy left to local leaders following consultation.
But devolution should not become a convenient way to dilute accountability.
A tax imposed on overnight accommodation affects more than the person paying the hotel bill. Its consequences will be felt by hospitality workers, businesses that rely on visitors, local suppliers, residents and the wider economy. These are not marginal interests. They are the people and organisations that sustain the visitor economy.
Yet the public is not being asked directly to approve the proposed bed tax through a dedicated vote. Instead, the Government is seeking to establish the powers centrally, without the accountability and transparency of public scrutiny or debate.
A mayoral election is not a specific mandate for every tax a mayor might subsequently choose to introduce. Nor should a general consultation be treated as a substitute for transparent, meaningful scrutiny of a measure’s likely consequences.
Parliament must scrutinise the legislation, and local decision-makers must be held accountable for the choices they make. Businesses and communities must have a genuine opportunity to understand the proposals, challenge the assumptions behind them and make their case before decisions are taken.
The danger is that the powers are created first, while the substantive debate about their consequences is deferred until later. Unintended consequences resulting in pain and cost are almost inevitable.
The proposed lack of appropriate process risks resembling executive-style policymaking: a major fiscal intervention advanced from the top down, with the details and consequences left to be worked through afterwards. It is a troubling direction for a policy that will affect the livelihoods of thousands of people and the competitiveness of one of the world’s leading visitor destinations.
If the Government believes this tax is justified, it should be prepared to make that case openly, backed by evidence and subject to rigorous scrutiny – not simply rely on the promise that future consultations might possibly resolve the questions that remain unanswered today.
2. Where is the economic and social assessment?
The second problem is more fundamental: where is the evidence that this is the right policy?
Before introducing a new tax on a major economic sector, the UK’s third largest employer, the Government should establish what it is likely to achieve, who will bear its costs, what unintended consequences might follow and whether the benefits outweigh the damage.
That requires a proper economic and social impact assessment, including the cumulative effect on hotel businesses already facing significant cost pressures.
How many visitors might decide not to stay overnight? How many might shorten their trips, become ‘day trippers’, choose another destination or reduce their spending? Who are the overnight visitors? Mothers wanting to stay near their sick children, parents visiting their elderly less mobile relatives, delegates attending events which might be relocated, or the visitors London needs to attract? What would that mean for hotel occupancy, employment, investment, restaurants, retail, attractions and transport? How would the tax affect domestic visitors, families, business travellers and the people who need accommodation for work?
And what happens if businesses close, investment is cancelled and jobs disappear? What will be the impact on tax revenues, local economies and public services when the businesses expected to contribute more are no longer there?
These are not hypothetical questions that can be dismissed as the concerns of an industry resisting change. They are essential questions for any responsible policymaker.
In September, the Government stated that mayors introducing a levy would be expected to publish an impact assessment following consultation on their specific proposals. That is not the same as having a comprehensive assessment available now to inform the national policy framework and parliamentary scrutiny of the powers themselves.
An assessment carried out later may help a mayor decide how to implement a levy. But it cannot replace an informed debate now about whether the policy is appropriate in the first place.
If the argument is that the bed tax will improve lives, strengthen destinations and support economic growth, then demonstrate it. Publish the evidence. Show the assumptions. Explain the likely costs and benefits. Account for the cumulative pressures on hospitality and assess the consequences for jobs, investment and the wider visitor economy.
If the Government cannot demonstrate that the policy will deliver a net benefit, it should not expect businesses and communities to accept the risk on its behalf.
The hospitality industry is not asking for special treatment. It is asking for decisions to be made properly, on the basis of evidence rather than assertion or kite flying speculation.
3. A tax designed to reduce demand is not a growth strategy
There is also a fundamental question about the purpose of the bed tax.
A levy on overnight accommodation makes staying overnight more expensive. Whatever its intended use, it is an additional cost attached to a visitor’s decision to stay. It therefore risks discouraging the very activity that sustains the visitor economy.
That is the contradiction at the heart of the proposal.
The visitor economy is not made up of hotels in isolation. It is an interconnected ecosystem. A hotel guest may eat in a restaurant, visit a gallery, attend a performance, shop on the high street, use public transport and spend money at local attractions. Business travellers may attend conferences, meet clients and support professional services. Visitors staying for several nights create opportunities for businesses across the capital.
Reduce overnight stays and the consequences can spread well beyond the accommodation provider.
Some destinations may face particular pressures from large numbers of day visitors who contribute relatively little to the local economy, for example cruise passengers disgorged into ports, while placing demands on public infrastructure. But an overnight visitor levy is not a targeted solution to the problem of ‘overtourism’ when no such thing exists. It applies to people who choose to stay, spend and participate in the local economy.
A bed tax is a demand-reducing measure. London does not need a policy that makes it harder to attract visitors and encourage them to stay longer.
The Government argues that revenue from the bed tax could be invested in infrastructure, local priorities and the visitor economy. But promising to reinvest some (unstated) tax revenue does not, by itself, establish that imposing the tax is the best way to generate growth. Nor does it guarantee that the additional revenue will compensate for any lost visitor spending, reduced investment or damage to business confidence.
There is a difference between investing in a destination to make it more attractive and making that destination more expensive in the hope that the additional revenue might somehow improve it.
London should be competing to attract visitors, conferences, events, international investment and talent. It should be encouraging people to stay longer, explore more and spend more across its businesses. The priority should be to strengthen the visitor experience and make the capital more accessible, attractive and competitive – not to introduce another cost without demonstrating its consequences.
A policy cannot credibly be described as pro-visitor simply because some of its proceeds might be spent on tourism, although even this potential ambition has not been articulated in any comprehensible or definitive way. The question is whether it strengthens the entire visitor economy or undermines the activity on which that economy depends.
4. The wrong question leads to the wrong answer
The debate has started in the wrong place.
Instead of asking how another levy can raise money, policymakers should be asking what London needs to grow, attract investment, support employment and remain competitive internationally.
If the objective is to improve public spaces, transport, infrastructure and the visitor experience, then those objectives deserve a serious funding strategy. That strategy must consider the full range of available options, the costs of each and the economic value generated by a successful visitor economy, not just a tax on bed occupancy.
The proposed bed tax appears to begin with the assumption that overnight visitors are an additional source of revenue to be tapped. It gives insufficient weight to the possibility that those visitors are already supporting jobs, businesses and tax revenues across the capital.
It also risks overlooking the people who make the visitor economy possible: hotel staff, restaurant workers, cleaners, suppliers, small business owners and the many others whose livelihoods depend on a thriving hospitality sector.
When additional costs contribute to business closures, the damage is not confined to balance sheets. It affects families, careers, local communities and the services that visitors and residents rely upon.
The question is not simply how much money a levy might raise. It is how much economic activity it could displace, what jobs and investment could be lost, and whether the proposed benefits justify those risks.
Without a credible assessment, no one can answer that question with any confidence.
5. Wrong measure. Wrong purpose. Wrong time.
London’s hospitality sector is already navigating significant economic pressures. Businesses need confidence, predictability and a policy environment that encourages them to invest, employ people and grow.
Instead, the proposed bed tax introduces another source of uncertainty – without a sufficiently demonstrated case that it is necessary, proportionate or economically beneficial.
At a time when national resilience is rightly being emphasised, the Government should recognise that resilience is built through strong businesses, skilled workers, reliable services and communities able to withstand disruption. Hospitality is part of that infrastructure.
We should not wait until businesses have closed, jobs have disappeared and investment has moved elsewhere to discover the consequences of a policy that was never properly assessed.
Central London Alliance is therefore calling for three clear actions:
- Pause and scrutinise the policy properly. Ensure Parliament has the opportunity to examine the powers and their implications, and that affected businesses and communities have a meaningful voice in the process.
- Commission and publish a comprehensive economic and social impact assessment before the policy advances further. This must examine the cumulative cost burden, potential effects on visitor demand, business viability, employment, investment and the wider economy.
- Reconsider the purpose of the measure. If the objective is growth, competitiveness and a thriving visitor economy, demonstrate why a tax on overnight stays is the right instrument – and compare it with alternatives that support rather than discourage demand.
The Government has a responsibility to make policy carefully, transparently and with a clear understanding of its consequences. Devolution should strengthen accountability, not postpone it. Consultation should inform decisions, not merely follow the creation of powers. And economic growth should be supported by evidence, not assumed as the inevitable result of raising revenue.
London does not need another tax simply because the power to impose one can be created. It needs leadership that understands the value of its visitor economy and the businesses that sustain it.
The bed tax is the wrong measure, for the wrong purpose, at the wrong time.
Before the Government asks hospitality to pay more, it must demonstrate what the tax will achieve, who will pay the price and why this is the right answer to the right question.