Andy Burnham used meetings with business chiefs at Labour’s Business Day to argue that tourist tax borrowing powers could allow metro mayors to take on more debt and invest in local infrastructure, City AM has reported. The claim marks a deliberate shift in how ministers are selling the overnight stay levy after a hostile reception from the hospitality sector.
Ministers, including Burnham and business secretary Jonathan Reynolds, told senior business groups that revenue from the levy could underpin additional municipal borrowing. The argument was presented across several meetings during the event, with Shevaun Haviland of the British Chambers of Commerce noting the topic came up ‘unprompted’.
Tourist Tax Borrowing Powers and the Bakerloo Line
The clearest illustration of what ministers have in mind came from Howard Dawber, London’s deputy mayor for business, during a panel discussion hosted by the London Chamber of Commerce and Industry and the Institute for Public Policy Research. According to City AM, Dawber said that borrowing against future levy revenues could allow London to extend the Bakerloo Line without having to seek funding from central government.
Dawber said mayors currently lack the ‘levers’ to issue bonds or use tax increment financing, a mechanism under which future property tax increases are used to pay for local infrastructure projects. He pointed to the Elizabeth Line as a precedent: it was partly funded by levies on certain properties. Dawber argued that ‘true devolution’ meant ‘London can just be London’.
Business chiefs, however, said there was little clarity on how tax receipts could actually be used to back up extra borrowing, raising doubts about whether the minister’s pitch had been worked through in detail.
Hospitality Industry Moves to Warn Off Lenders
The government’s attempt to reframe the levy as a borrowing tool has run into an immediate counter-offensive from the hospitality sector. Allen Simpson, chief executive of UKHospitality, said he intends to write to banks to ‘remind’ them that both the Conservatives and Reform UK have pledged to scrap the levy if they come to power.
Simpson’s warning was direct: ‘Lending against a holiday tax would be a bad credit decision. No loan or bond issued against it can be considered safe, given the very real possibility that the tax revenues could simply disappear and lead to default.’
The concern is straightforward. If a future government abolishes the levy, mayors who have borrowed against its proceeds would face a funding hole with no obvious way to repay creditors. Hospitality bosses privately warned ministers this week that the levy would also damage tourist numbers and the wider hospitality industry, according to sources involved in the discussions.
The tourist tax borrowing powers argument has therefore opened a second front of opposition beyond the original complaints about cost. Hoteliers had already condemned the ‘significant’ tax burden the uncapped, percentage-based levy would place on guests, following the government’s announcement that there would be no upper limit on the charge. A flat-fee structure, which the industry had regarded as more manageable, was set aside in favour of a rate tied to the price of accommodation.
The levy was announced by the government as part of a broader devolution drive intended to give metro mayors greater control over funds raised locally. A government spokesperson said: ‘Mayors and local leaders have been given this new power as part of a historic devolution drive that shifts power out of Westminster and into local hands. All funds raised from the levy will be invested in the local economy, from high streets to public transport and events that boost tourism and drive good growth, benefitting visitors, businesses and local people.’
Simpson’s planned letter to lenders will test whether banks treat that commitment as a reliable revenue stream or share the industry’s scepticism about its political durability. UKHospitality’s position is that no responsible lender should treat the levy as a stable long-term asset against which to extend credit to local authorities.
