London Mayor Sadiq Khan is poised to benefit significantly as Chancellor Rachel Reeves prepares to approve the introduction of a ‘tourist tax’ in the upcoming Budget.

The anticipated policy change would allow mayors across England to levy additional charges on accommodations such as hotels and bed and breakfasts, potentially generating substantial revenue.

This new tax could bring in over £500 million annually across England, with London alone possibly contributing £200 million to that total.

Proponents of the tax, reportedly including Mayor Khan, argue that it aligns with practices in other major international cities like Paris, which already have similar levies, and follows the example set by Manchester’s ‘business levy.’

However, the hospitality sector has criticized the government’s move, accusing it of reneging on previous assurances against implementing such a policy.

Meanwhile, Ben Houchen, the Conservative Mayor of Tees Valley, has firmly rejected the proposal, describing it as a ‘cash grab.’

They pointed out that British people spend hundreds of millions of nights at hotels and bed ‘n breakfasts in England every year – and will have to pick up a bigger tab. 

Ms Reeves is looking at a ‘Smorgasbord’ of tax hikes on November 26 to help fill a black hole in the finances that could be as big as £40billion.

She has been left scrambling to raise huge sums from a welter of smaller measures after humiliatingly ditching the idea of increasing income tax, amid a Labour panic about breaching its election manifesto.

Rachel Reeves is set to punish milkshake lovers and holidaymakers as she desperately tries to bring in cash at the Budget next week

That could raise more than £500million a year – including potentially £200million for Sadiq Khan in London alone

Supporters of the charge – understood to include the capital’s Labour mayor – point out that other major global cities such as Paris have already implemented a similar policy

Tory Tees Valley Mayor Ben Houchen has made clear he will shun the opportunity, branding it a ‘cash grab’

Ms Reeves is poised to keep the long-running freeze on thresholds in place for another two years, despite humiliatingly dropping plans to increase income tax.

The policy would net the Treasury more than £8billion a year. 

But the boost to the government’s coffers would come at a huge cost for Britons, with more than 10 million people facing paying the top rate of tax by the end of the decade. Some couples’ tax bill will be £1,300 higher than if the policy finished as previously scheduled. 

The worse-off will also be hammered, with a full-time worker earning the minimum wage seeing their annual tax bill rise £137 relative to the current policy of increasing thresholds in line with inflation. 

For the first time, all pensioners will be hit with tax on the full state pension in 2027-28 – so the state is effectively giving with one hand and taking with the other.

Tourist taxes take various forms in different parts of the world, but typically add an extra charge for every night stayed. In New York the levy raises nearly £600million a year.  

Kate Nicholls, Chair of UKHospitality, denounced the idea of a ‘tourist tax’.

‘If this is true, it would be another shocking U-turn from a Government who committed in the House of Commons only two months ago that it would not introduce a tourism tax, and in fact promised the industry the same thing in writing,’ she said.

‘I know the Government is worried about the cost of living, but this holiday tax is little more than a higher VAT rate for holidaymakers. Brits take over 89 million overnight trips in England, and stay for a total of 255 million nights. This is a bill we will all have to pay, and will only serve to ramp up prices and drive inflation.

Ms Reeves is also poised to confirm that the so-called ‘Sugar Tax’ will be toughened up, removing the existing exemption for around 200 milk drinks.

Draft proposals for extending the sugar tax published earlier this year suggested some sugary milkshakes will be hit with charges of 26p per litre. 

Measures put out for consultation by the government would remove the ‘Sugar Tax’ exemption currently in place for milk drinks (file picture)

The threshold for the paying the tax would also be reduced from 5g of sugar per 100ml to 4g – potentially dragging many more products in. 

The Soft Drinks Industry Levy was announced in 2016 and introduced in 2018 to ‘tackle childhood obesity’. It applies to pre-packaged soft drinks with added sugar, rather than drinks made in cafes.

However, milk-based drinks were not covered because they are a source of calcium and other nutrients.