The government is understood to have slashed funding to tourism promotion body VisitBritain despite trumpeting plans to boost visitor numbers.
Secretary of state for culture Maria Miller agreed last week to an 8% cut in budget for the Department for Culture, Media and Sport (DCMS) which covers tourism.
The cuts form part of the government's latest spending review.
However, the European Tour Operators Association (Etoa) has learned DCMS funding for VisitBritain and VisitEngland will fall by 12%.
VisitEngland is responsible for the current £4-million Wallace and Gromit 'Great Adventure' campaign (pictured) to promote domestic holidays which has won support from the trade.
Etoa chief executive Tom Jenkins expressed dismay. He said: "The UK’s position as a tourism exporter is in a critical state. In our main markets, the UK has been losing share against other destinations in Europe."
Jenkins said: "In the US, our share has dropped from one in four US travellers coming here to less than one in five.
"The cost of this failure can be measured in billions of pounds and tens of thousands of lost jobs. There are similar falls in other origin countries."
He said: "We recognise savings have to be made. But tourism is a cash-generating, export industry.
"We are handicapped by Air Passenger Duty, a border that is perceived as hostile, the visa process and a flawed VAT regime that punishes operators for selling Britain abroad.
"It seems desperate to cut funding to the one agency charged with helping British exports in this area."
Etoa points out a Deloitte study in 2010 estimated travel and tourism contributes 9% of UK GDP and is responsible for 2.6 million jobs.
However, the sector receives just 3% of the DCMS budget. The coalition government has previously claimed to recognise the economic impact of tourism.
Prime minister David Cameron pledged in 2010 to lift the UK up the destination rankings o the UN World Tourism Organisation from sixth to fifth. Britain has since fallen to seventh behind Turkey.
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