Scrap upcoming ‘tourist tax’, hundreds of hospitality bosses tell Reeves

More than 200 UK hospitality and leisure bosses, including Butlin’s, Hilton and Travelodge, have urged chancellor Rachel Reeves to scrap planned powers allowing mayors to levy a modest visitor tax on overnight stays in hotels, Airbnbs and holiday lets—rights confirmed in last year’s autumn budget. The industry warns such levies (Edinburgh is set to introduce a 5% visitor charge in July and London and Liverpool have signalled interest) would depress domestic demand, divert spending overseas, and risk jobs and local business revenue, while the government says any new charges should be modest and set by mayors to fund local infrastructure.

Analysis

Market structure: A modest English visitor levy (likely 3–5% in city pilots; Edinburgh is 5% in July) is a targeted demand shock to domestic leisure accommodation and short-stay supply. Winners are global/international travel platforms (BKNG, ABNB outside UK exposure) and airlines (IAG/RYA) if UK households substitute abroad; losers are domestically-focused hotel and holiday operators (Whitbread, Travelodge/private players, regional B&Bs) with ~1–5% revenue hit depending on local levy pass-through and price elasticity (-0.4 to -1.0 implied).

Risk assessment: Tail risks include widespread mayoral adoption raising average effective room rates by >5–7% and tipping marginal family trips into cancellation, and political backlash forcing rebates or exemptions (policy reversal). Immediate (days) impact is booking sentiment; short-term (30–90 days) is booking flows around summer, and long-term (quarters) is capex/valuation re-rates for domestic operators. Hidden dependencies: revenue distribution (levy reinvested into attractions could increase long-term destination demand) and corporate vs leisure mix matters for resilience.

Trade implications: Expect relative underperformance of UK-focused leisure names vs global operators over next 3–12 months; volatility will spike around mayoral budget votes (next 30–180 days). Options should be used to express asymmetric views ahead of clear local policy—buying puts on WTB.L 3–6 month expiries or buying calls on IAG/LNG (IAG.L) for outbound demand are efficient. Rotate out of UK leisure REITs and into global OTAs/airlines exposure while maintaining short sizes given policy uncertainty.

Contrarian angles: Consensus assumes permanent volume loss; history (Barcelona, Venice) shows tourist taxes often cause short-term substitution but limited long-term demand destruction if revenues fund infrastructure. The market may be overstating immediate earnings downside—if levies stay <=3% many operators can absorb or offset via promotions. That makes small, scalable trades with tight stops preferable to large directional bets.

Key Decisions for Investors

• Establish a 2–3% long position in IHG.L (InterContinental Hotels Group) to hedge UK domestic weakness with international exposure; target +15% upside over 6–12 months, stop-loss at -10%.
• Initiate a 1–2% short position in WTB.L (Whitbread) to express domestic leisure pressure; add to a maximum of 3% if a local levy >3% is enacted in two or more major UK cities within 90 days. Set profit target -20% and hard stop +12%.
• Buy 3-month puts on WTB.L ~5–7% OTM (size 0.5–1% of portfolio) to limit downside while keeping capital light; if levy proposals pass, roll to 6-month puts or increase notional exposure.
• Establish a 1–2% long in IAG.L (International Consolidated Airlines) or RYA.L to capture outbound substitution; increase allocation if Booking/airline forward bookings show >5% sequential rise month-over-month in the next 60 days.
• Monitor mayoral council budget votes and Edinburgh implementation closely: if three or more major cities announce levies ≥3% within 120 days, increase UK leisure shorts by an incremental 1–2% and rotate proceeds into BKNG and ABNB (non-UK revenue exposure).