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Mayor Boris Johnson's proposed levy on hotel development could damage tourism

19 May 2010 by

The future growth of the tourism industry in London could be at risk from a proposed levy on all new hotel developments.

InterContinental Hotel Group (IHG), Wyndham and Travelodge are amongst a number of leading hotel companies which have signed a letter to London Mayor Boris Johnson urging him to abandon his plans to put what is effectively a tax on all future hotel developments of £60 per square metre in Central London and £82 per square metre in the Isle of Dogs.

The consultation for the proposal to introduce the levy, which is intended to help pay for the £16b Crossrail project running from Heathrow Airport to Canary Wharf via the West End and City of London, ended on Wednesday. A funding agreement between the mayor, Transport for London and the Government, envisages that £600m might be raised towards the cost of the project from developers.

Initially, the Greater London Authority (GLA) recommended that the money be solely raised from office developments, but after lobbying at the Examination in Public in December 2009, the mayor accepted that the hotel and retail sectors should also be included.

In the letter, the hoteliers say that the mayor's proposal is a "folly" and goes against his objective to support jobs in London's tourism businesses.

"The reason we as a hotel industry offer such an attractive product is regular renewal and development, something your new tax will put at risk given the difficulties many developers are finding in raising finance," the letter said. "The likely stifling of activity that will follow the imposition of a hotel tax runs contrary to your desire in the London Plan to improve hotels in the central activity zone to attract more business visitors."

The letter has been signed by Tim Kemp, chairman, Firmdale Hotels; Raj Matharu, chairman, Grange Hotels; Kirk Kinsell, president for Europe, Middle East and Africa, IHG; John Brennan, chief executive, Jury's Inn; Grant Hearn, chief executive Travelodge; and Steve Terry, senior development director, Western and Southern Europe, Wyndham.

Bob Cotton said that at a time that the GLA and the new Coalition Government should be encouraging hotel development - with the Olympics in 2012, the Rugby World Cup in 2015 and the bid for the 2018 World Cup - this proposal would act as a disincentive.

"This will not encourage tourism to flourish which should be a key driver in the recovery of the economy," he said.

IHG said that the proposal was yet another tax on hotels which would discourage growth. "By expanding, the hotel industry will create jobs with genuine career paths and training at a level where unemployment is at its highest," said a spokeswoman.

Tony O'Brien, UK development director at Travelodge said he was surprised that having previously shown strong support for the hotel industry, the mayor had decided to include hotels within his new development tax.

"Given the margins involved, this will likely hit the budget sector hardest, potentially hindering further development in the centre of London," he said.

If the mayor's plans go ahead, the average bill of construction for a 200-bedroom Travelodge could increase by 3-4%, which amounts to around £300,000. There will be an initial reduction of 20% for a three-year period from the introduction of the new charge.

The GLA London Plan team expects to make a final recommendation to the mayor within two to three weeks.

Does improved transport for tourists justify a tax on hotel development? Share your views on Table Talk >>

Tourism not a priority in mayoral campaign >>

Bed tax fear for hospitality sector >>

Hotel rooms in London to grow 12% by 2012 >>

By Janet Harmer

E-mail your comments to Janet Harmer here.

If you have something to say on this story or anything else join the debate at Table Talk - Caterer's new networking forum. Go to www.caterersearch.com/tabletalk

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