A tourism tax is among the ideas being floated to help raise cash for the mayor, reports Kumail Jaffer, Local Democracy Reporter

Failing to devolve more powers to the mayor and City Hall to help raise revenue from tourism will lead to “ugly” tax decisions being taken to fund the capital’s infrastructure, ministers have been warned.

The current mayoral precept – the council tax bill that goes to funding London-wide services controlled by City Hall – stands at £490.38 for a Band D property. It represents one of the only ways the mayor can raise money to fund projects and improve existing services in the capital, however.

With ambitions such as the Docklands Light Rail and Bakerloo Line extensions needing a funding boost to become reality, politicians at all levels in London have raised the need for the capital to be able to fund itself rather than relying on Treasury funds.

Ministers have already been warned that London could lose out in the Fairer Funding Review, which analyses the ways that local authorities are handed cash settlements, from next April.

The government has repeatedly been pressured to allow City Hall to impose a tourist tax which would see visitors charged a fee for staying overnight in London. Such a scheme already exists in New York and Paris, but ministers say there are no plans to introduce one in England – even though it is backed by Sir Sadiq Khan and many London boroughs.

During a fringe event at last week’s Labour Party Conference, ministers were accused of treating London “like a pinata” and that transferring money away from the capital was a “lazy” option for politicians.

Adam Hug, leader of Westminster City Council, said: “Vastly more money leaves London to pay for services and infrastructure in the rest of the country than is reinvested into London. There is occasionally some slightly performative kicking in London when the reality is, come actually visit, not just the centre of town – come to visit our communities and see the real challenges that we face.

“Give us the flexibility and give us a plan, because when we were preparing for the future Fairer Funding Review, we were not expecting anything on the scale that is currently being proposed, so it’s about having a fair deal.”

Allowing City Hall to raise revenue independently through a tourism levy would both be fairer to residents and allow London to fund its own infrastructure ambitions, he clai,med.

“The tourist economy is being subsidised by local taxpayers and at the moment we’re not getting anything to show for that,” Cllr Hug added. “Boroughs and the GLA [Greater London Authority] provide services that support the visitor economy and it’s got to be a fair partnership between both levels particularly given the pressures on local government financing like that. Everywhere else in world seems to have one of those.”

Labour MP Dawn Butler added: “Everybody’s in favour of a tourist tax. Politically, nobody’s against it because we’re not going to be able to beat them.

“We’re going to win that debate and that argument and I think that we’re gonna have a tourist sooner rather than later.”

Joe Dromey, general secretary of The Fabian Society think tank, told the event, hosted by Central London Forward: “London is infantilised compared to other global cities – we retain just 4% of tax locally, so our fiscal firepower to address local challenges and invest is absolutely tiny.

“We need more powers – and particularly more powers to capture some of the wealth that we have in London, so that might be an overnight levy, or it might be flexibility over council tax. That can allow us to do two things. One, to redistribute within London, because there is nowhere in the UK where there’s a stronger case to redistribute than in the capital. But two is to invest in London.

“If the government doesn’t want to invest in London, they should let London do it. And in order to do that, we need to be able to raise revenue to service that and so we need fiscal devolution.”

Without a tourism levy, the mayor has limited options, according to Dromey. He told the Local Democracy Reporting Service (LDRS): “The mayor does have some powers to raise revenues, but they are largely based on council tax, they’re pretty ugly powers.

“So the mayoral precept is referred to as a regrettable necessity, because it just puts extra money on top of council tax, which is highly recessive in itself, because they’re the richest Londoners are paying the same proportion of their income as the poorest.

“So that puts him in the sort of unenviable choice of having to sort of not have enough resources to tackle London’s problems or having to tax poorer Londoners more.”

A Ministry of Housing, Communities and Local Government spokesperson said: “There are currently no plans to introduce a tourism tax in England, but we are open to hearing views from local leaders on this. Places including London can already choose to introduce a levy on overnight stays through the Accommodation Business Improvement District model.”

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