‘A small tax with big potential – let the mayors tax tourists’

 The Chancellor needs more growth (as does everyone else), and the metro mayors need more money. There is a simple, small, well-used idea that brings both of these issues together – tourist taxes.

Labour’s metro mayors support the idea. Most major European cities already charge a tourist tax on top of the price of an overnight stay. Scotland and Wales have tourist taxes in place. England is the outlier, and London is the biggest city in the G7 without some form of tourist tax.

Labour must change that.

 And it should choose a form of tourist tax that best promotes growth in England’s big cities. The optimal approach is a percentage levy on overnight stays in hotels and short lets, set at a rate chosen by the local authority. This kind of visitor levy is currently being introduced in Scotland and already raises large revenues in big global cities like New York.

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The Chancellor should start by granting London and the six next largest cities in England – all covered by Established Mayoral Strategic Authorities – the power to put it in place too.

This kind of tourist tax gives places the flexibility to adjust their rates to local demand, avoiding the risk of deterring tourist trade in places with relatively few overnight visitors. And it also allows places with more high-end hotel offerings to raise more revenue from visitors on bigger budgets.

Estimates vary on how much a tourist tax like this would raise, depending on the place and the rate the metro mayor decides to charge. Even if the revenues are small, Labour should still give metro mayors the power to adopt it because it would better align their incentives with growth. A flexible, unrestricted tourist tax offers a clear incentive to grow the local visitor economy, with an increase in overnight stays directly increases their unrestricted funding.

Supporting the growth of the visitor economy will grow their resource. More planning permissions for hotels will increase their funding for improvements to the public realm that benefit both visitors and residents. Some of the revenue can be invested in the rest of the economy too, to provide the link between growth and a higher quality of public services. This could be transport upgrades, policing or investment in skills.

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The Chancellor must design as much flexibility into the tourist tax as possible. Letting places choose their own rate – unlike the Welsh model of a flat tourist charge, set nationally – allows England’s big cities to adapt the tax to the quantity and variety of visitors they attract.

Once the Chancellor has established the framework for a tourist tax, then she has to trust the mayors to do what is right for their places. Crucially, the Chancellor must allow metro mayors to exploit the new revenue stream as they choose. Labour has to resist hypothecating the revenues for visitor economy uses – such as funding local museums and galleries.

If you restrict the revenues of a tourist tax, that severs the connection with growth. Growing the tourism tax base no longer grows their mayor’s resource to do what they were elected to do. Growth is abstract. But the Chancellor can make growth more tangible by putting the metro mayors in charge of a revenue stream generated from the local economy, and letting them fully exploit it as they choose.

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Labour should commit to fiscal devolution to maximise the big cities’ potential for growth. By granting metro mayors autonomy to fund investments out of their own local economies, Labour can deliver a long overdue shift of power from Whitehall to the productivity engines in every part of the national economy.

The tourist tax is a good place to start. It would boost growth and it’s small enough that there are no disbenefits to the Treasury. With Labour mayors who support the idea in charge in England’s big cities, it’s time to give them the power to charge a tourist tax.

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