Holidaymakers will face a nightly levy on hotel stays and Airbnb-style visits in England under plans ministers are due to outline to give mayors new powers.

The idea, labelled a tourist tax, was first raised by Keir Starmer’s government in November and is similar to a scheme running in Scotland. It would allow mayors to charge a fee to visitors staying overnight and decide how the revenue raised should be invested.

The tax could raise hundreds of millions of pounds for mayors to put into transport and public services, but it is likely to be seen as a blow for the hospitality industry, which was squeezed by tax rises and extra employment costs announced in last year’s budget.

The housing secretary, Angela Rayner, is meeting mayors on Thursday, and is expected to outline that the levy will be charged as a percentage of the cost of accommodation, rather than as a flat fee, to protect budget holidays.

Mayors are expected to be given the power to decide what is best for their local area, but ministers do not expect the levy to become overly expensive.

Allen Simpson, the chief executive of UKHospitality, said the plans would put jobs at risk in some communities, and the new tourism tax in Edinburghwas “already having damaging effects”. He told BBC Radio 4’s Today programme holidays in the UK were “already more expensive” than they appeared because of higher VAT.

“What we’re talking about here is an open-ended power for mayors to set tourism taxes at any level they want,” said Simpson. “And remember that if you go to Paris, if you go to Rome, if you go to Berlin, you’re paying a small tourism tax, but it’s capped.”

He added: “It will be the case that you’ll have holiday parks which can’t open in the shoulder seasons and of course people who go on holiday will just have that little bit less money in their pocket.”

The overnight visitor levy was outlined in the king’s speech in May, but legislation was not brought forward before Starmer was ousted as prime minister. Andy Burnham is likely to pitch the policy as part of his wider devolution agenda. No 10 has previously said local leaders would be “able to set out plans for how revenues will be invested by March 2028”.

As mayor of Greater Manchester, Burnham introduced the city visitor charge in April 2023 – a £1 per room per night fee – to pay for measures aimed at attracting more visitors. Last year other mayors, including Sadiq Khan in London, wrote a letter to the culture secretary, Lisa Nandy, and Reeves urging the government to introduce a visitor levy.

Edinburgh became the first city in Scotland to introduce a tourist tax at 5% in July after the Scottish parliament passed a law last year granting councils the power to implement their own visitor levies. In Wales, councils will have the power to charge £1.30 a person a night in tax for most accommodation from April 2027.

But UKHospitality, which represents thousands of restaurants, hotels and pubs, has said a tourism tax of 5% would be one of the highest tourist tax rates in Europe. It has written to Burnham urging him to consider plans for a “holiday bonus” instead, as households continue to struggle with the cost of living.

Tourist taxes are common in Europe and the rest of the world, and are used in cities such as New York, Barcelona and Venice to fund local services.