Tourism taxation and policy choices in the UK: the impact of high VAT on demand, competitiveness and resilience

What is it about?

This study looks at how the tax on tourism in the UK affects the industry. During Covid, the government temporarily cut VAT on hotels, restaurants and attractions from the usual 20%, then put it back up in 2022, and the study uses that change as a real-world test. It found that the cut helped businesses survive, but many kept part of the saving to repair their finances rather than lowering prices fully. Once the tax went back up, prices rose, visitor numbers fell, some regions struggled more than others and more businesses were at risk of closing. The UK also ends up looking expensive next to European countries with lower tourism tax. The author argues for permanently lower VAT on core tourism services, using tax to attract visitors in quieter seasons, and spending tourism tax money on local areas. The main point is that tourism tax shouldn't only be a way to raise money: it can also help the industry stay competitive and cope with shocks.

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Why is it important?

Tourism and hospitality employ many people across the UK and are important to many local economies, especially in coastal and rural areas, and the government can pull the sector's tax rate as a direct lever. This study uses the real Covid-era VAT cut and its reversal to show what actually happens when that lever moves: who benefits, how much reaches customers, and which places and businesses get hurt when the tax goes back up. That evidence matters because the UK debate often treats VAT only as a way to raise money, while nearby European countries charge lower rates on tourism and may draw visitors away. It also comes as more UK cities are considering overnight "tourist taxes." By presenting tax as a tool for keeping businesses resilient, spreading visits across the year and funding local destinations, the study gives policymakers a way to weigh short-term tax income against the sector's long-term health and competitiveness.