Inner London boroughs will generate the bulk of the revenue under a 3% levy on nightly room charges and are keen to keep the cash raised in their areas, reports Kumail Jaffer, Local Democracy Reporter

Sadiq Khan in central London (credit Adrian Zorzut/Local Democracy Reporting Service)

A tourist tax on overnight visitors could raise more than £350million per year for the capital – but more tourism-friendly boroughs in central London are keen to keep the bulk of the cash raised in their areas.

Mayor of London Sir Sadiq Khan last year finally received the powers to levy a tax on overnight visitors to the capital after years of lobbying ministers.

New modelling from Central London Forward (CLF) – which represents twelve inner London local authorities, including Haringey – has shown a 3% levy on the cost of a room could see £352m in extra income for the mayor every year.

This is significantly higher than previous forecasts, which suggested such powers could raise up to £240m annually.

CLF say a percentage-based levy, also seen in Berlin, Edinburgh and New York, would represent a fairer system over a flat per night tax, which would see higher end and budget travellers paying the same fee. A flat rate would also require regular uprating to keep pace with inflation.

The analysis, seen by the Local Democracy Reporting Service (LDRS), shows that the twelve CLF boroughs alone would raise £275m from a 3% levy on hotels and short term lets, with the remaining authorities yielding an estimated £77m.

This has sparked calls from the central boroughs to retain half of the additional income in order to mitigate the increased cost pressures of tourism. These authorities host the majority of the capital’s visitor accommodation, including 71% of hotel rooms and 67% of short-term lets.

Westminster could raise over £95m by itself, according to visitor estimates, with Camden, Kensington and Chelsea, and Tower Hamlets all forecast to bring in more than £20m annually.

It has not yet been decided how any money raised from a tourist tax in London would be split between City Hall and local authorities.

Adam Hug, CLF chair and leader of Westminster City Council, said: “Central London boroughs play a crucial role in ensuring the visitor economy grows and thrives.

“We work to keep the streets clean, well maintained and safe, we invest in new public realm projects from the transformation of Regent Street to upgraded public loos in my own borough and we work with businesses to give them the support they need to grow. Many of these services for visitors are currently funded by our local residents which is not right.

“The government should legislate to ensure that at least 50% of the revenue raised by an overnight stay levy is kept by London boroughs, so we can continue providing the services London needs.”

Though income will fluctuate depending on room price changes and the number of visitors in a given year, there is also evidence to suggest that the amount of money raised from a tourist tax in London could increase further in future years.

There are currently 196 hotels across in London either in planning, under construction or undergoing renovation. Together, these have the potential to deliver another 29,500 hotel rooms.

This is in addition to an average two per cent increase in AirBnB listings in the capital every year, which suggests another 1,249 short-term lets going on the market in the next five years.

As a whole, this increase could raise another £13.1m London-wide, including £7.2m in the CLF boroughs alone.

A spokesperson for Khan told the LDRS: “The mayor welcomes the government providing London with new powers to charge a tourist levy. This extra funding will directly support the capital’s economy and help cement our reputation as a global tourism and business destination.

“The government are currently consulting on the design of the levy. Once they have responded, we will outline our plans for developing the levy in London, including how we will engage with London’s local authorities and hospitality and tourism sectors, to ensure it delivers the maximum benefits for London.

“London is the gateway to the UK – accounting for over half of all international visits. Providing London with the powers to collect and retain a tourist levy would generate sustainable revenue to reinvest back into London’s economy, driving growth, creating new jobs and boosting the UK’s global standing and competitiveness.”

The Ministry of Housing, Communities and Local Government (MHCLG) has been contacted for comment.

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