Bed tax: Why pick on one industry?

27 March 2006
Bed tax: Why pick on one industry?

A bed tax in England would be iniquitous and would lose the industry both customers and revenue warns Bob Cotton, chief executive of the British Hospitality Association (BHA).

The BHA pointed out the dangers and the iniquity of a bed tax to the Lyon Inquiry last April. But Sir Michael Lyons' interim report in December showed he was still interested in this potential avenue of raising funds for local authorities in England.

Hotel guests comprise less than 40% of overnight accommodation stays. Some 60% of people stay in rented accommodation, second homes, timeshare, camping and towed caravans, or they stay with friends and relations.

These groups would almost certainly be excluded from any tax, due to the practical difficulties of collection. With no statutory register of accommodation, it would be impossible to obtain verifiable figures on which to base a tax and the cost of collection would most likely outweigh the revenue gained.

Hotels pay their share of business rates and local authority charges (which are reflected in their prices) and overnight visitors, too, already help fund local authorities. Why punish the industry more heavily with a selective tax?

There's a possible further iniquity. A bed tax could be imposed in England but not in Scotland and Wales, which would be unfair to English operators.

Worse, there could be variations within England itself. If local authorities are given powers to raise a bed tax, it is inevitable that some will impose it and some will not. Once imposed, wouldn't there be a temptation to increase the tax every year?

To rub salt into this wound, the affected businesses have no vote to overturn their local authority's tax-making decisions.

Such a tax would increase prices. This would not only deter domestic demand but make the country even more expensive for overseas visitors. This is at a time when the imbalance of tourism payments is more than £16b, with Britons spending more than £30b on overseas travel.

The Treasury will insist that a bed tax at the suggested level of 5% would be subject to VAT. So a hotel stay in an average £60 (ex-VAT) UK regional hotel room would carry a total tax of more than £14 per night, giving an overall tax rate of 23.6%.

This would add almost £100 to the current bill of a family of four staying for a week in a room charging this rate. The tax would push England to almost three times the European average and harm our competitiveness in the international market.

A bed tax will inevitably lose us customers. Research by Nottingham University shows that a 1% rise in prices relative to other countries leads to a 1% decrease in international tourism. Research by VisitBritain gave a higher (1.4:1) loss ratio for international tourism.

Applying the Nottingham University research, a bed tax applied across the UK could reduce international tourism revenues to the UK by about £220m and domestic revenues by around £325m. This would cost the Exchequer more than £200m in lost taxation, with nearly half lost on international tourism being totally irrecoverable.

These are significant objections which the BHA and the Tourism Alliance have already submitted to the Inquiry. It is good that Travelodge has now raised the issue again and brought it to the attention of the travelling public.

We expect Sir Michael's final report at the end of the year and we must hope that he takes note of these objections.

If you would like to make a submission to the Inquiry, the address is:
The Lyons Inquiry into Local Government Funding
Room 3/12
1 Horse Guards Road
London SW1A 2HQ

Letters: Who else will join the fight against bed tax? >>

By Bob Cotton

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