Rayner demands tourist tax in clash with Reeves
The Deputy Prime Minister has argued that councils should be given the power to tax visitors' hotel stays, amid a scramble by cash-strapped local authorities to cash in on booming demand.
It comes as a record 43 million foreign visits to the UK are expected this year, on top of British families travelling within the country.
Treasury officials are opposed to a tourism tax amid fears it would be a fresh blow for hospitality businesses already hit by Labour's tax raids in last year's Budget, as well as snuffing out a post-Covid revival in visits.
The row aligns Ms Rayner with powerful regional mayors including Sir Sadiq Khan and Andy Burnham. It marks her latest clash with the Chancellor after previous disagreements over how to plug a multi-billion-pound fiscal black hole.
A senior government source said devolving more power to local mayors was central to Ms Rayner's plan for economic growth, but Ms Reeves was looking for 'quick wins' and did not want to force through constitutional changes that would take time and could backfire.
Councils are lobbying the Treasury to be allowed to charge their own taxes, a power that is currently reserved by Westminster.
Ms Rayner is understood to have pushed for the power to charge tourist taxes to be included in the Government's Devolution Bill, which was published earlier this month.
But the Chancellor has ruled out further fiscal devolution, believing that Ms Rayner's workers' rights law and the increase in employers' National Insurance contributions last year have already driven up costs on businesses.
Many European cities, including Barcelona, Lisbon, Venice and Amsterdam, charge tourists a tax on the cost of hotel rooms and private rentals, either as a flat rate or percentage of the room charge.
Cities in Wales and Scotland have their own tax-raising powers. Visitors to Edinburgh and Glasgow will pay five per cent on hotel stays from 2026 and 2027 respectively, while hotels in Wales will soon charge tourists £1.30 per night.
Liverpool and Manchester charge tourists a fee per night, but the current powers are limited to small 'business improvement districts' and cannot be levied across large areas.
However, other councils in England have halted plans for limited tourist taxe s after opposition from hotel owners.
In Dorset, some businesses said the tax could cost them £600,000 a year, amid other pressures on profitability. Hoteliers have warned that holidaymakers will choose to stay elsewhere because of the charge.
Kate Nicholls, the chief executive of the industry group UK Hospitality, has said England already ranks poorly compared to its European neighbours for 'tourism competitiveness' because of the comparatively high rate of VAT.
Any tax raid would also put a recovery in visitor numbers at risk. VisitBritain, the country's tourism agency, expects a record 43.4 million overseas visits this year, up 5 per cent on 2024. Foreign tourists are expected to boost the economy by £33.7 billion.
Andy Burnham, the Labour Mayor of Greater Manchester, is among the local leaders pushing to be allowed to charge more in England, while Sir Sadiq, the London Mayor, has suggested he would be open to a tourist tax in the capital that would provide more revenue for local projects.
Last month, both mayors signed a joint letter with their counterparts in Liverpool, the North East, West Yorkshire and the West Midlands, demanding a 'Barcelona-style' tourist tax.
Tourists don't mind paying, says Khan
Sir Sadiq then told the Jimmy's Jobs podcast that tourists 'don't mind' paying a 'small levy' in European cities.
He said: 'We could spend more money improving the public realm, which would encourage more tourists to come but also improve the quality of life for residents in London.'
Sir Sadiq's team is understood to be privately making a case for the tax to Whitehall departments.
Council bosses in Britain say they could raise an extra £209m across the country by charging visitors £2 a night, and are hoping Ms Rayner will make the case more forcefully to the Treasury.
A report commissioned by the County Councils Network, published last week, found that new taxes could be 'transformational' for councils, and argued that local leaders should also be able to retain a portion of stamp duty revenue and income tax.
The group said the policy would be a 'win-win for both central and local government', but would likely create a further black hole for Ms Reeves at her autumn Budget.
Ahead of the publication of the Devolution Bill, Ms Rayner told MPs she wanted to see 'more push' for councils to have their own tax-raising powers, and that it was 'deeply disrespectful' for Whitehall to tell local government leaders how to spend their budgets.
'I like to think if you actually empower local leaders [...] my style of leadership is that you get the best outcomes from that,' she said.
However, The Telegraph understands that her argument has been poorly received by Ms Reeves, who is sceptical of fiscal devolution.
The two women have repeatedly clashed on tax policy this year, including when a memo by Ms Rayner containing a series of tax-raising suggestions was leaked to The Telegraph.
The Chancellor has been warned by hospitality groups that further taxes would risk making their businesses unprofitable, after a year of higher taxes under Labour.
A source close to the discussions said Ms Rayner had 'lost, short term' on local taxes, but that she could return to the issue later in this parliament.
As Secretary of State for Housing, Communities and Local Government, Ms Rayner is responsible for the Government's policy on councils, but cannot make decisions on tax.
Government sources played down the idea that Ms Reeves and Ms Rayner were in conflict over the issue, but did not deny that they disagreed about tourist taxes.
Mel Stride, the shadow chancellor, told The Telegraph: 'Labour can't help themselves – it's always tax, tax, tax.
'Whether it's Angela Rayner or Rachel Reeves, the instinct is always the same – more taxes.
'First a £25 billion jobs tax, now threats of a tourist tax that would hit hospitality hard.'
Pressure on Starmer to cut tax
It comes as Sir Keir Starmer was on Monday urged by a senior Labour MP to deliver a 'big, bold, working class tax cut' after a year in Downing Street.
Liam Byrne suggested to the Prime Minister during a session of Parliament's liaison committee that he could 'tweak up' capital gains tax to allow for tax cuts for workers.
Sir Keir declined to commit to any tax changes, saying: 'I'm not going to be tempted to start speculating on what might or might not be in the Budget. It's going to come in the autumn.'
The Labour Government has opened the door to increasing the state pension age by formally launching a review into the level at which it is set.
The state pension age is currently 66 and is already poised to rise to 67 between 2026 and 2028. The Government is legally required to carry out a review by 2029.
Whitehall insiders played down the prospect of changes being announced imminently, suggesting it was 'highly unlikely' one would be unveiled before the 2029 general election.
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