Rachel Reeves, the Chancellor, is expected to unveil significant new tax proposals in the upcoming Budget, aimed at bolstering public finances. These measures, which reportedly include the introduction of a nightly 'tourism tax' on hotel and Airbnb stays and an extension of the existing 'sugar tax' to encompass milk-based drinks, are anticipated to generate hundreds of millions of pounds. However, they are also drawing sharp criticism from the hospitality industry and economic experts.

One of the key proposals involves granting mayors in England the power to implement a 'visitor levy' or 'tourism tax' on overnight stays. This move could generate substantial revenue, with estimates suggesting more than £500 million annually, potentially including up to £200 million for London alone, as advocated by figures like Sadiq Khan and Greater Manchester mayor Andy Burnham. A coalition of mayors had previously urged the government to introduce such a levy, citing its potential to fund essential infrastructure projects and public services, with Greater Manchester projecting an annual income of £8 million to £40 million from a £1 to £5 per night charge. Proponents also argue that England lags behind other developed countries and major global cities like Paris, which already have similar taxes in place. Scotland, for instance, has allowed councils to implement visitor levies, with Edinburgh set to introduce a 5% tourist tax from July next year. Similarly, Welsh councils will have the authority to charge £1.30 per person per night for most accommodation starting April 2027.

The hospitality sector, represented by the trade body UKHospitality, has vehemently opposed the tourism tax. Kate Nicholls, the chair of UKHospitality, warned that a 5% holiday tax, similar to Edinburgh's proposed rate, would result in an effective consumer tax of 27% once standard 20% VAT on hotel stays and VAT on the holiday tax itself are factored in. This, she argued, would make it one of the highest tourist tax rates in Europe. The trade body estimated that a 5% levy would cost British holidaymakers an additional £518 million, affecting over 89 million overnight trips and 255 million nights spent in England. Nicholls criticized the proposal as effectively a 'higher VAT rate for holidaymakers' that would escalate prices and fuel inflation, also noting the government's previous commitment against such a tax.

In addition to the tourism tax, the Chancellor is expected to introduce a 'milkshake tax' by removing the exemption that milk-based drinks currently hold from the 'sugar tax'. This soft drinks industry levy, which applies to beverages with 5g or more of sugar per 100ml (taxed at 18p per litre), was initially introduced in 2018 to combat childhood obesity. Milk-based drinks were previously exempt due to their nutritional value, including calcium. The proposed changes would not only extend the tax to around 200 milk drinks but also potentially lower the sugar threshold for taxation from 5g to 4g per 100ml, which could significantly broaden its scope and raise an estimated £50 million to £100 million in revenue. Draft proposals for extending the sugar tax published earlier this year suggested some sugary milkshakes could face charges of 26p per litre.

These proposed tax increases are part of a broader strategy by Rachel Reeves to address a substantial financial black hole, potentially reaching £40 billion, following the abandonment of plans to increase income tax. Other measures being considered include maintaining the long-running freeze on tax thresholds for an additional two years, a policy expected to generate over £8 billion annually for the Treasury. However, this decision carries a significant cost for Britons, with projections indicating that more than 10 million people could face the top rate of tax by the end of the decade, and even full-time minimum wage earners could see their annual tax bill rise. For the first time, all pensioners are expected to be hit with tax on the full state pension in 2027-28.

The unfolding budget preparations have drawn sharp criticism regarding their impact on the economy. Andy Haldane, former chief economist at the Bank of England, delivered a scathing verdict, describing the process as a 'circus' that has 'crushed growth hopes.' He attributed weak GDP figures, including a mere 0.1% expansion in the third quarter and a 0.1% fall in September, to the intense speculation surrounding the budget. Haldane argued that this 'pernicious speculation' has caused businesses and consumers to 'hunker down,' reducing their willingness to spend and invest, thereby stifling economic growth. He urged the Treasury to decisively end such speculation. Paul Johnson, former head of the IFS think-tank, echoed concerns, describing the Chancellor's approach as a 'mouldy Smorgasbord' of unappetizing tidbits that could prove economically damaging rather than leading to sensible reforms.

Despite the backlash and economic concerns, a Treasury spokesperson emphasized that the budget later this month aims to build stronger foundations for Britain's future, focusing on key priorities for working people: cutting waiting lists, reducing national debt, and lowering the cost of living. They refrained from commenting on budget speculation.