Tourist levy branded ‘disastrous’ for Devon and Torbay’s hotel sector

Hotel owners and hospitality leaders across Devon say plans to let regional mayors introduce a new overnight tourist levy would place fresh pressure on a sector already struggling with rising costs.

The measure, announced in the Autumn Budget by Chancellor Rachel Reeves, would allow elected mayors to impose a nightly charge on visitors staying in hotels and other accommodation. The power could later be extended to areas without a mayor but with a combined strategic authority.

Paul Callingham, Chairman of Starboard Hotels Ltd, which owns The Cliffden Hotel in Teignmouth, said the proposal risks adding a new financial burden on businesses that rely on year-round tourism.

He said: “There was nothing that would seriously adversely affect hospitality during the Chancellor, Rachel Reeves, Autumn Budget speech, but the announcement that the Government will allow local Mayors to impose their own new Tourist Levy’s without any control on how the money is to be spent is disastrous.”

He added: “This is a direct tax on hotels. We will need to include the Levy’s in our published room rates to comply with the Digital Markets, Competition and Consumers Act 2024. And guests will not pay extra as our rates are market driven, but this will be an increased burden on hoteliers at a time when the industry is already under pressure.”

Paul warned that different parts of the country setting their own rates could make day-to-day operations harder for businesses working across multiple regions.

“This has not been thought through and we will probably see different rates all over the country which for a business like ours will be hard to manage,” he said.

He added: “I suspect it will be impossible for the local authorities to collect this Levy from Holiday Let businesses, especially individual Air B&B landlords.”

Concerns across Torbay

Hospitality businesses in Torbay say the levy arrives on top of rising payroll costs, business rates and National Insurance, with many warning the sector has little capacity left to absorb further charges.

Before the Budget, Gary Salter, owner of The Lighthouse Continental Café Bar on Torquay Harbour, said VAT remains the most significant pressure for small operators.

"The biggest effect on the hospitality industry has always been VAT, along with taxes on wages, National Insurance, and business rates, which will always affect small businesses.

“In Europe, hospitality is still taxed at 5-10%, while here in England we’re still charging 20%. When the Budget is announced, it will only push small businesses to look for ways to cut expenses.

“During Covid it proves that the hospitality industry can thrive as long as they reduce the VAT to 5% on food. That was a big boost for our industry and this is the way forward for growth. No taxing businesses to the state where they are not recruiting staff.”

A spokesperson for Arena Torquay added that any further costs risk undermining growth in the leisure sector.

“We’d like to see business rates reduced for the leisure trade and the system reviewed as a whole. VAT reduced or removed on ticket sales, no increases in alcohol tax and measures that support growth not hinder it such as the last NI rise.”

South Devon’s Liberal Democrat MPs Caroline Voaden, Steve Darling and Martin Wrigley have also warned that pubs, cafés, restaurants and independent high street businesses are at risk without urgent support.

Polling commissioned by the party found concern across the South West that:

• 62% are worried about losing their local pub

• 71% fear cafés and restaurants could shut

• 45% believe bars and nightclubs are at risk

• 51% are concerned about losing their local hairdresser

The party argues that the sector is still dealing with last year’s rise in National Insurance contributions, which they have described as a “jobs tax”.

Before the Budget announcement, they called for an emergency cut in VAT to 5% for hospitality until April 2027, saying the industry needs “a £7.5bn life raft” to avoid further closures.

The National Living Wage and National Minimum Wage will also increase in April, boosting pay for around 2.7 million workers. While the rise has been welcomed by low-paid employees, business owners say wage bills are becoming increasingly difficult to meet alongside high utilities, produce and insurance costs.

How the tourist levy could impact Torbay

Local hoteliers say the proposed levy risks:

• raising accommodation prices, reducing Torbay’s competitiveness against regions without a tourist tax

• compressing already tight margins, as hoteliers absorb the charge into room rates

• creating a two-tier tourism economy, with hotels paying but holiday lets potentially avoiding collection

• confusing visitors, if different rates are applied across Devon and Cornwall under any future combined mayoral authority

Torbay Council has not yet indicated whether it would seek to introduce a levy if powers are granted.

The Government argues the measure would allow regions to reinvest in public services used by tourists. Hospitality businesses in Torbay say any such move must be carefully designed or risk undermining a sector central to the local economy.