After two weeks of scorching sunshine, Britain’s B&Bs should be celebrating a staycation bonanza. Yet as millions head to the coast and countryside in the heatwave, hoteliers are cursing new government regulations they say will stop them showing guests a good time.

The Package Travel Regulations – designed to protect travellers who book flights and hotels online – will mean that B&Bs and hotels need extra insurance if they want to reserve guests a table at the hotel’s own restaurant or book them a taxi to a local pub, according to the Tourism Alliance, which represents more than 50 tourism industry bodies. The regulations, based on an EU directive, were intended to offer travellers the protection they would have if they booked through a travel agency.

But the Department for Business, Energy & Industrial Strategy extended the rules to cover any service not part of the room rate – something no other EU country has done, according to Kurt Janson, director of the Tourism Alliance. “It means hotels will have to buy insolvency insurance, at £1,000 or £1,500 per business,” Janson said. “It’s very frustrating, and if you don’t do it, it’s a criminal offence.”

Alistair Handyside, who runs three holiday cottages in Devon and is chairman of the South West Tourism Alliance, said the regulations were “a complete strand of daftness – Yes Minister in real life.”

“When people come, I want to tell them to have a meal at The Holt, as it’s the best pub for miles, but you have to book in advance,” Handyside said. “Now if I do that for them, I’ve got to buy insolvency insurance. There’s nothing in the EU directive saying the host booking business needs insolvency insurance. That has been added by UK civil servants.”

Handyside said the weather had been a boon for domestic tourism. “When the sun came out on May bank holiday, the phones started ringing. May and June have been fabulous.”

People had been booking foreign holidays in greater numbers than last year, David Hope, a director at GfK, a market research firm, said. But he added that since 20 June, foreign holiday bookings are down by 7% compared with last year – a swing of 13%.