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Bed tax gives me nightmares

10 June 2011
Bed tax gives me nightmares

Charging guests a bed tax will never fly, despite Michael O'Leary's pleas, says Ufi Ibrahim, chief executive of the British Hospitality Association

Michael O'Leary, the chief executive of Ryanair, has a certain reputation - as we all know. His latest suggestion is that Air Passenger Duty (APD) should be replaced with a £1 per person per room tax on hotel stays - a bed tax by any other name.

For some very good reasons, the BHA has always been opposed to a bed tax and we successfully saw off a suggestion of one in 2007. O'Leary now believes that charging hotel guests an extra £1 per night would raise a similar sum of money for the Government as taxing air passengers, but that the impact would be less severe - for example, £1 on a £100 hotel room, rather than £12 on a £100 plane ticket.

This shows some pretty confused thinking. First, by our calculations, such a tax would only raise in the region of £600m (depending on how a ‘hotel stay' is defined) but APD currently raises £2bn with a potential for £3.5bn.

Second, the hotel industry dislikes APD as much as the airlines because it raises the cost and discourages both inbound and outbound travel. But switching it from airline passengers to hotel users is not reasonable. The hotel industry already bears a 20% VAT on accommodation - the second highest in Europe - which makes UK hotels uncompetitive with most EU countries. If O'Leary's proposal is accepted it would make this situation even worse. In any case, air fares have escaped VAT entirely - so why should the hotel industry absorb APD?

Third, not all airline passengers stay in hotels. Many (probably about 40%) are visiting friends and relations, or staying in self catering, or are merely going home. Again, why should hotel users ‘subsidise' airline passengers who have nothing to do with the industry?

Finally, the collection of such a levy - from thousands of different establishments - would be administratively very expensive and would probably cost more than the likely revenues.

These are exactly the industry's arguments against the idea of a general bed tax, which some continental cities (like Rome and Florence) are now beginning to introduce. At a time of fierce international competition, a bed tax would make Britain's tourist industry even more uncompetitive than it is at present, with a 20% rate of VAT. This wouldn't benefit either the hotel or the airline industry.

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