England is getting a new tax on overnight stays. The 5% cap is a voluntary pledge by mayors, and the law itself sets no maximum rate. The power Angela Rayner confirmed yesterday lets mayors charge whatever percentage they like on a hotel, B&B or Airbnb stay. Ten Labour mayors have voluntarily promised not to go above 5%. Nothing in law stops a future mayor going higher, and the government itself has said the number of nights it applies to will be capped centrally at something likely above Edinburgh's five.
Plan around 5%, because every major Labour mayoral area has now put that figure in writing. If you run a hotel, guesthouse, holiday let or caravan park in one of those areas, from London to Yorkshire, work out what 5% would cost you before the bill reaches Parliament.
What was announced
Housing and local government secretary Angela Rayner confirmed on 10 September that mayors and Foundation Strategic Authority leaders will get the power to introduce an Overnight Visitor Levy — a charge on hotels, B&Bs, self-catering lets and other paid accommodation. Crucially, the government says it will legislate for the levy to be charged as a percentage of the accommodation cost, specifically to stop a cheap room being hit as hard as an expensive one. A bill goes to Parliament "in due course" — no date has been set — and each mayor decides individually whether to bring in a levy, at what rate, and how the revenue gets spent, after local consultation.
Ten Labour metro mayors — London, Greater Manchester, Liverpool City Region, West Midlands, North East, West of England, West Yorkshire, South Yorkshire, East Midlands, and York and North Yorkshire — wrote jointly to the Chancellor and to Rayner pledging to cap any levy they introduce at 5%, calling it a "reasonable ceiling". Conservative mayor of Tees Valley Ben Houchen has ruled a levy out entirely, and Reform UK's mayors in Greater Lincolnshire and Hull and East Yorkshire have said the same — so large stretches of the east coast will see no levy for now, while most of England's biggest cities will.
Trade body UKHospitality opposed the plan. Its chief executive, Allen Simpson, told BBC Radio 4's Today programme a 5% levy applied across England could put an estimated 33,000 jobs and £2bn of economic activity at risk, hitting tourism-dependent regions like the Lake District hardest, and that it would add roughly £100 to £120 to the average family holiday. Premier Inn's owner Whitbread called it "hugely damaging". None of those figures have been confirmed or endorsed by government — they're UKHospitality's own modelling — but they give a sense of scale for the numbers below.
Worked example: a 20-room independent hotel
This illustration uses published occupancy and rate assumptions typical of a regional three-star hotel, at the 5% ceiling most Labour mayors have committed to.
| Metric | Basis | Figure |
|---|---|---|
| Rooms | 20 | |
| Average room rate | £95.00 | |
| Occupancy | 68% | |
| Room-nights sold per year | 20 × 365 × 68% | 4,964 |
| Annual room revenue | 4,964 × £95 | £471,580 |
| Levy collected at 5% | £471,580 × 5% | £23,579 |
The hotel collects that £23,579 from guests and passes it on, the same way it handles VAT. It still has to be quoted, billed, reconciled and remitted, and it changes the headline price a guest sees on every booking platform. Compare it with the voluntary flat-fee schemes already running: Manchester's business-led City Visitor Charge is £1 per room per night, and Liverpool's is £2 per room per night. On the same 4,964 room-nights, Manchester's flat fee raises £4,964 and Liverpool's raises £9,928 — both far below the £23,579 a 5% ad valorem levy raises on a £95 average rate. A percentage levy also means a premium room pays more than a budget one, which the government says is the intention.
On a single stay, a family booking a £95 room for four nights pays an extra £19.00 in levy — broadly consistent with UKHospitality's £100–£120 estimate for a longer family holiday covering more nights and more rooms.
What it means in each type of area
If you're a hotel, guesthouse or holiday let operator in one of the ten committed mayoral areas — including Greater Manchester, where Andy Burnham himself introduced the voluntary City Visitor Charge as mayor before becoming Prime Minister — plan for a 5% addition to your headline room price becoming law within the next year or two, and start deciding now whether you'll itemise it separately on the booking confirmation, the way Edinburgh's scheme does, or fold it into the quoted rate.
If you're in Tees Valley, Greater Lincolnshire or Hull and East Yorkshire, nothing changes for now — your mayor has ruled it out — but the underlying legal power is still being created nationally, and a future mayor could reverse that position without needing fresh legislation.
If you run a furnished holiday let, B&B or small guesthouse outside any mayoral area altogether, no levy applies to you yet, because the power only exists where a mayor or Foundation Strategic Authority chooses to use it. Build the ability to track and remit a percentage-based levy into your booking and accounting systems now, while it's optional.
What is still uncertain
Whether VAT applies on top of the levy has not been settled. Conservative shadow housing secretary David Simmonds has called it a "Labour double whammy" — VAT charged on the levy as well as the room. Neither HMRC nor the Treasury has published guidance on the VAT treatment, and the enabling legislation hasn't been drafted yet. Edinburgh's Scottish scheme was structured as a statutory charge specifically to sit outside VAT; whether England's bill copies that approach is unknown until the bill text appears.
There is no start date. The government says a bill will follow "in due course". Mayors and Foundation Strategic Authority leaders who want to introduce a levy must publish their detailed reinvestment plans by early 2028. That deadline applies to mayors, and the levy needs the bill to pass and local consultation to run first.
The maximum number of qualifying nights hasn't been fixed. Westminster will cap how many consecutive nights of a stay the levy can apply to — reportedly higher than Edinburgh's five-night cap — to avoid catching long-term lets, but the actual number hasn't been published.
What to do this week
- Model your own 5% number now. Take your last twelve months of room revenue and multiply by 5%. That is what the levy would add to your guests' bills if your area's mayor proceeds at the cap.
- If you already run a voluntary charge, read how the statutory levy is meant to work alongside it. The government's own announcement is here: gov.uk: Local leaders handed powers to drive investment in communities. It includes mayor-by-mayor statements, including Liverpool City Region's estimate that a modest levy there could raise up to £18m a year.
None of this changes what you owe today. Before the bill passes, model the levy, decide how to show it to guests and build it into your forecasts. Our Budget and cash flow forecast service covers pricing it into forecasts, checking the cashflow effect of a new pass-through cost and deciding whether to absorb any of it, alongside the sector-specific support we already give hospitality and food businesses and landlords running furnished holiday lets. If you want to talk through what this means for your own numbers, tell us what you run and we'll come back to you the same working day.
Sources: BBC News, "Labour mayors in England vow to cap tourist tax at 5%", published 10 September 2026; The Guardian, "Ministers face backlash from hospitality industry over 'tourist tax' plans", published 10 September 2026; gov.uk, "Local leaders handed powers to drive investment in communities", published 10 September 2026. Manchester and Liverpool voluntary charge rates as reported by BBC News. UKHospitality job and cost estimates as reported by the Guardian and BBC News; not government figures. Figures correct at 11 September 2026.
