The Mayor of London has cautiously expressed his approval towards reports suggesting the implementation of a tourist tax on visitors who stay overnight in the city.

Chancellor Rachel Reeves is anticipated to grant Sir Sadiq Khan and other city leaders the power to introduce such a levy through the English Devolution and Community Empowerment Bill, which is currently under consideration in Parliament.

Sir Sadiq has actively advocated for the devolution of these powers, with projections indicating that a tourist tax in London could generate up to £240 million annually.

In 2024, the capital recorded 89 million overnight stays.

At present, England stands out as the only country in the G7 – which comprises the world’s seven largest “advanced” economies – where the national government restricts local authorities or mayors from enacting tourist taxes.

Scotland and Wales have recently rolled out various forms of taxes on overnight guests, with local councils in Scotland permitted to establish their own levies based on a percentage of the accommodation’s daily charges.

From 2026 onward, authorities in Wales will be allowed to charge £1.30 per night for lodging visitors.

Recently, the Greater London Authority (GLA) commissioned the Centre for Cities think tank to investigate potential areas for further devolution within the city.

In a report released last week, the authors outlined that three different kinds of tourist levies are present in the main cities of the G7 – including Paris, Munich, Milan, Toronto, New York, and Tokyo.

New York City and Toronto enforce percentage-based levies on lodging, with New York generating £493 million annually at an average nightly visitor rate of £14.86.

Conversely, Tokyo has a fixed fee structure for all reservations, bringing in only £35 million despite the city hosting the highest number of overnight visitors among major cities.

In France and Italy, the taxes levied are influenced by the location, type of lodging, and the official “star rating”.

The authors recommend that London would be best suited to either a percentage-based or flat fee system, noting that the UK does not have a statutory national “star” rating system for hotels like France and Italy.

The GLA had previously estimated in 2017 that a daily £1 levy, accounting for international visitors, could yield £91 million, and that a 5% levy could generate £240 million.

The Centre for Cities report also concluded that “London is not likely to experience a significant decline in visitors if a levy similar to those in other major cities is introduced.”

This finding is based on research indicating that tourists are less sensitive to levies in highly sought-after destinations.

According to the Centre for Cities, a well-executed tourist tax could enhance economic growth and improve infrastructure and the business climate in London.

The mayor’s ability to manage the tax rate and allocate revenue would enable adjustments based on visitor trends more efficiently, as illustrated by Toronto increasing its rates ahead of the upcoming World Cup in North America.

Andrew Carter, CEO of Centre for Cities, remarked: “The government should consider the model currently in Scotland, with Edinburgh, Glasgow, and Aberdeen implementing percentage-based levies on overnight hotel stays, B&Bs, and short-term rentals.”

He pointed out that a “key advantage” of this approach is its “flexibility,” allowing the rate to fluctuate with demand for overnight accommodations.

“A tourist levy would benefit London’s hospitality industry, provided that the resulting revenue is directed toward local government – ideally shared between City Hall and boroughs – rather than being restricted by central government for specific uses,” Mr. Carter added.

“Introducing a tourist levy could mark the beginning of a broader initiative to devolve tax and spending powers to the capital. As the UK’s most productive large city, granting London additional fiscal powers would equip it with more tools to stimulate economic growth.”

Kate Nicholls, chair of UK Hospitality, criticized the idea as “shocking.”

She stated: “Visitors from abroad are vital not only to central London but to the entire city, including builders working, businesses attending conferences, and families coming for concerts and to visit loved ones.

“This will significantly impact British consumers; it acts as a tax on hardworking families taking a short holiday in London and could deter visitors altogether.”

She continued: “The VAT rate in England, Wales, and Scotland sits at 20%, which is substantial – effectively a tax on a tax.

“Our customers are already facing the highest taxes; if we price them out of visiting London, we risk losing jobs, growth, and investment in the London economy.”

Westminster, home to numerous iconic landmarks such as Big Ben, the Houses of Parliament, and Buckingham Palace, has been advocating for a tourist tax for “many years,” according to its council leader.

Adam Hug noted: “We have over a million people during the day compared to about 200,000 residents, meaning our local taxpayers are subsidizing services for the rest of London.

“An overnight stay levy could help to balance this and enable us to pursue more creative initiatives in the future.”

The Labour councillor added: “Local councils and the government are currently facing considerable pressures, so while this minor change may not drastically alter consumer behavior, it would create a vital revenue stream for local economies.”

Other councils, including Southwark and Brent, have also expressed support for implementing a similar levy.

The mayor’s office has shown a favorable outlook towards the proposed changes but stated that it would refrain from commenting on “speculation” and would wait for more concrete developments before making preparations.

A spokesperson for the Mayor of London conveyed to the Local Democracy Reporting Service (LDRS): “The mayor has consistently indicated that a modest tourist levy, akin to those in other international cities, would stimulate our economy, foster growth, and strengthen London’s status as a global tourism and business hub.”

While the chancellor is widely expected to announce this initiative in the near future, no formal steps have yet been taken.

A representative of the Ministry of Housing, Communities, and Local Government stated to the LDRS: “We are always receptive to feedback from local leaders regarding such matters.

“Locations can already opt to introduce a levy on overnight stays by utilizing the Accommodation Business Improvement District (ABID) model.”

Richmond Council is considering establishing an ABID for its area, known for attractions such as Hampton Court Palace and Kew Gardens. If a city-wide tourist levy were introduced, it is anticipated that existing local schemes would be discontinued.