01How should a tourist tax be designed?

A Scottish-style percentage rate would be more appropriate for England than a Welsh-style flat fee.

There are broadly two ways a tourist tax can be designed. It can be levied as either a percentage rate on the value of a booking for overnight accommodation, or it can be a flat fee on a booking or per person basis.

Scotland and Wales have each legislated to give local authorities the power to introduce the former and latter approach respectively. From 2026 onwards, Edinburgh and Glasgow will introduce a 5 per cent tourist tax and Aberdeen will introduce a 7 per cent tourist tax. Wales has passed a law that will allow councils from 2027 to opt-in to a nationally consistent £1.30 per person for hotel stays, and 75p per adult in hostels and campsites.

The problem with the Welsh-style tourist tax is it presents a trade-off between fairness and receipts. As a regressive ‘poll tax’ design, a flat fee will fall heaviest on the least affluent and most price sensitive visitors. To avoid this regressive impact, any Welsh-style tourist tax will have to be set at a low level, which in turn will reduce receipts and the financial incentive from growing the visitor economy. This is why, for example, Tokyo’s flat tourist tax raises little money despite a tourism boom.

By contrast, a percentage rate approach ensures the burden of a tourist tax falls on those with the greatest ability to pay. Cheaper accommodation will present visitors with a lower tourist tax bill comparable to a low flat fee, while premium accommodation will make an outsized contribution to the city’s receipts. This will provide a strong incentive for cities to expand their premium offer to raise as much revenue as possible.