§ Mr. David Heathcoat-Amory (Wells)The British art market is large, competitive and successful. It employs nearly 51,000 people and has an annual turnover of more than £2.2 billion. Although some of the UK market is purely domestic, it is unique in Europe and probably pre-eminent in the world because it attracts buyers, sellers and works of art from all over the world. That international market is primarily based in London, and is one of the reasons why London is a world city of interest and vitality. The big auction houses, around which well-known dealers are clustered, are based in this city and throughout the west end. Support services, such as conservation, restoration, framing, printing, specialist services, freight, insurance and packing, which feed off the international market, are much more widely spread. Wider still, many provincial dealers and auctioneers, who form a vast network of businesses throughout the United Kingdom, benefit from such international traffic.
We are debating a major British asset which is similar to the City of London. Both markets are global in their outlook, and both face daily competition from alternative market centres. That is particularly true of art, which is a mobile commodity. A work of art does not have to be sold in London. A seller of a valuable picture, painting or sculpture will weigh up the advantages and comparative costs of selling the work in London, Geneva, Tokyo or New York. It is, therefore, very important that we do nothing to put the UK at a disadvantage—whether through unnecessary costs, regulation or taxes.
The UK art market, however, faces exactly such a threat. The threat comes in two parts. First, value added tax on most imported art is set to double next year from 2.5 to 5 per cent. The 2.5 per cent. rate was negotiated by the previous Government as a temporary derogation or concession which is due to run out in June. I have explained that we rely very much on art coming to this country for resale so, if we tax it—the doubling of VAT is certainly such a tax—dealers and sellers outside the European Union will simply send their art somewhere else. Instead of sending it for resale in London or somewhere else in the EU, they will divert the business to other world centres that are hungry to attract it. There is already evidence that, even at the lower concessionary 2.5 per cent. rate, such diversion is happening. Over the past year, the volume of art entering the UK has fallen by 22 per cent. compared with the volume before the VAT rate was imposed in the mid-1990s. If we double VAT on imported art, the damage will be great.
I ask the Government to fight at least to retain the lower rate for the UK and, if possible, to extend its imposition. I and the art trade generally have no wish to be in a privileged position in the EU. The art trade thinks that it can earn that position through its skills and enterprise. It would be entirely happy for the rest of the EU also to have a lower rate of VAT on art imports. Why cannot the European Union for once go for the low-tax solution instead of endlessly harmonising tax upwards, which simply renders the EU uncompetitive in world terms?
I do not underestimate the difficulties of achieving that solution; it would require unanimous agreement among member states. We are not asking them for additional payments or resources. We are simply asking that they 370 agree on a lower permitted rate of VAT on imports. The French in particular may be allies in achieving that. Christie's is being bought by a Frenchman who—we are told—has personal contacts with the President of France. Will the Minister ensure that that and other avenues are pursued and that, in particular, other member states and the European Commission are made aware of the damage already done to Europe by VAT? London is not just a British city; it is a European Union city. Other member states should understand and have sympathy for retaining the successful global position of a European asset.
The second threat facing the British art market comes from a European Union directive to impose droit de suite—artists' resale right—on all member states. Under droit de suite, if a work of art is resold, a percentage of the price is supposed to be collected by an agency and paid to the artist or his heirs for up to 70 years after his death. That is the theory, but, in practice, collection costs are very high and very little money tends to be collected, especially for poorer or less well-known artists. The resale of any valuable work of art tends to take place in an underground world so that no levy can be collected—or worse, the sale is transferred abroad to centres where droit de suite does not apply. Someone selling a Picasso or a Matisse, faced with having to pay a levy in London, will simply not sell it here. The sale will be transferred to Geneva, New York or one of the other centres.
British sellers of art who are already based here will take their works elsewhere as well. Works will not be exchanged through the auction houses or other dealers in the United Kingdom, but transported to other centres where the levy does not apply. If that happens, the artist will get nothing out of it; the auction sales will simply take place in other centres. Christie's and Sotheby's already have American assets and conduct many sales in New York. Their owners will not suffer, but the people working for them in London will. The office staff, the experts, the porters, packers and other employees will lose their jobs. All the dealers who rely on the international traffic will either shut down or transfer to New York.
The proposal is crazy, damaging and short-sighted—but it is a real threat, because, although I would regard it as a tax matter, which should, therefore, be decided by unanimity, the European Commission has ensured that it is categorised as a trade matter, and so can be imposed on us by majority vote. The Commission is supported by France and Germany, which already have droit de suite.
The basic failure has been the failure to see that tax harmonisation is making the European Union uncompetitive in world terms. What is the point of extending a levy and imposing it on the United Kingdom, when the beneficiaries will be not other member states, or even the European Union in general, but the New York art market? The proposal is entirely barmy.
The Minister has a good reputation for understanding the issue and for fighting our corner. I hope that he will be able to tell us what he has been doing to act on his concerns about the matter and to find allies elsewhere in the European Union. I hope that he will be able to show us that the Government as a whole have a policy to deal with the problem. It should have been raised during the British presidency of the EU; perhaps it was. If so, I should like a report on what happened. After all, the Government say that they have tremendous influence in Europe; let them turn that into practical action.
371 The art market is certainly united. The British Art Market Federation has been campaigning hard on behalf of all sectors of the art market, and its president, my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke), is attending the debate. I hope that he will contribute to it in a moment or two.
As so often happens, responsibility for the issue in Government tends to be a little fragmented. The Treasury is responsible for VAT, so I hope that it is pursuing the threat to double the rate of VAT on most imported art. The Department of Trade and Industry deals with droit de suite and has been monitoring progress on the directive which, to my regret, has already been through the Council of Ministers once. It has also been through the European Parliament, which agreed and authorised it with a few suggested amendments.
The directive is now due to come back to the Council of Ministers, and it is crucial that, by that point, we have made allies of several other member states that either do not have droit de suite and may, therefore, regard it as a threat, or for other reasons realise that the interests of the European Union as a whole require us not to extend the principle to countries where it does not now apply.
The Department for Culture, Media and Sport should certainly not only have a watching brief on the health and vitality of the art market, but vigorously fight its corner within Government and more generally. I hope that the House is united behind the case I have outlined. What we need from the Government is an equivalent united and determined high-level campaign to defend a British success story and a vital British asset.
§ Mr. Peter Brooke (Cities of London and Westminster)I am grateful to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), whose debate this is, and to the Minister, for their kindness in letting me intervene. I declare an unremunerated interest in the Register of Members' Interests as president of the British Antique Dealers Association and also of the British Art Market Federation, which was created in the final year of the Conservative Government so that the Government—which primarily means, as my right hon. Friend said, the Department of Trade and Industry, the Department for Culture, Media and Sport and the Treasury—could have a single body to deal with on behalf of the British art market, much of which is concentrated in my constituency.
It is not for me to say why I was invited to take on the role, but I was the Minister responsible for Customs and Excise in the mid-1980s, and was, therefore, involved in a long saga about VAT and the art market at that time. Latterly, I was also the Secretary of State in what is now the Department for Culture, Media and Sport.
My right hon. Friend the Member for Wells has been eloquent in his comments on the problems, and in this brief intervention, I will confine myself to observations on our interface with the European Union. First, the art trade in the other European countries envies us the quality of the relationship in this country between the trade and the Government. In that respect, I commend the Minister, who has won golden opinions for the robustness with which he stands up for our interests.
372 However, I am afraid that the envy of others draws attention to the inability of their trade to educate their Governments, and thus the Commission, about the art market. My right hon. Friend's pamphlet contains an illuminating exchange between the British Art Market Federation and the Director-General in Brussels. The Director-General turned aside our anxieties by saying that only the major auction houses were concerned—whereas in fact, the major auction houses are the only parties involved that are protected against those considerations by virtue of the fact that they have businesses in Switzerland and the United States as well.
Secondly, the Governments affected in some other European countries, unlike our Departments here, do not work out a common position, as has happened in the past and as I hope is happening now.
Thirdly, it is important not to drive the art market out to the United States and Switzerland, because essentially this glory belongs to Europe, and sending it offshore does Europe no good. I shall finish with a quotation from Burke:
the age of chivalry is gone. That of sophisters, economists, and calculators, has succeeded; and the glory of Europe is extinguished for ever.We have every confidence in the Minister as our champion.
§ The Minister of State, Department of Trade and Industry (Mr. Ian McCartney)I thank the right hon. Members for Wells (Mr. Heathcoat-Amory) and for Cities of London and Westminster (Mr. Brooke) for their kind remarks about me as the Minister who co-ordinates Government activity in this area. I am not sure whether I got that job on the basis of my skill and knowledge of the industry, or because I am the same size as Toulouse-Lautrec. Whatever the reason was, I have committed myself with some gusto to work with hon. Members on both sides of the House and throughout the Government to try to resolve the issues in a positive and effective way.
I congratulate the right hon. Member for Wells on his success in the ballot. The debate is, indeed, timely; there has been much press coverage lately about the art market, and the right hon. Gentleman has had some hand in that by publishing his pamphlet, "A Market under Threat". I welcomed the opportunity for our officials in Government to work with the right hon. Gentleman in the process of developing his arguments in the pamphlet, which has brought a greater knowledge of the issues at stake to a wider group of people. Now there is wider coverage of the issues; no longer simply the art markets talking among themselves or to the Government.
The Government have made their position on the art market clear several times. Lord Haskel spoke about the resale right and import VAT on works of art in a debate in the other place last December. Indeed, this is the fourth debate to take place since the Commission tabled its proposals for resale a little over two years ago. Numerous parliamentary questions have been asked, and the Government have done all that we can to make our position clear not only to Parliament, but to all concerned.
Policy towards the Commission's proposal to harmonise the resale right has not changed. Like the previous Government, we do not want to be compelled to introduce the right. The Commission's proposals are 373 misconceived, and we have said so many times. We oppose them and want to see them defeated. As for the seventh VAT directive, that is a legacy which we inherited.
I understand the concern of the right hon. Member for Wells for the future of the art market. I am grateful to him for giving me the opportunity to restate the Government's position on the resale right, to update the House on developments and to deal briefly with import VAT on works of art. Value added tax can be a complex and difficult subject, as the right hon. Gentleman will know from his time as a Treasury Minister. Although VAT is, of course, a Treasury responsibility, my Department has an interest in its impact.
The seventh VAT directive is a particularly complex package, which is not confined to VAT on imports of art and antiques. The Government are aware that the temporary derogation won by the United Kingdom to levy an effective rate of 2.5 per cent. on art imports—instead of the otherwise harmonised minimum of 5 per cent.—was welcomed at the time by the trade. However, we are aware also of concerns expressed since then about the apparent impact of that VAT change. We are conscious of the trade's anxiety about the possible consequences of further changes after June 1999—the time when the United Kingdom derogation from the harmonised minimum rate of 5 per cent. expires.
When the seventh VAT directive was agreed, an undertaking was secured that the European Commission should provide the Council of Ministers, by the end of 1998, with a report on the impact of the relevant provisions of the directive on the competitiveness of the Community's art markets in relation to third-country art markets. The Government take this issue very seriously, and place considerable importance on that undertaking. The United Kingdom will take an active part in the review, and will ensure that the British art trade's concerns are heard.
On relations with the French, officials have been in contact with their counterparts in France about a range of issues arising from the seventh directive. We expect the discussions to continue as the Commission review progresses. The Government have urged, and will continue to urge, the Commission not to press ahead with the resale right proposal without due regard to the VAT review. Unlike the Commission, we do not believe that artists' resale rights and import VAT should be considered separately. It is important to know what the combined effect will be on competitiveness.
The Government are in no doubt that the Commission's proposal on artists' resale rights would damage the international competitiveness of the London art market. It would result in trade switching from London, not to other European capitals, but to New York and Switzerland—as the right hon. Member for Cities of London and Westminster indicated—and as far afield as Hong Kong and other centres where the right does not exist. According to estimates made by my Department, British auctioneers and dealers could lose earnings of up to £68 million per annum, resulting in 5,000 job losses.
The European Parliament has, to some extent, recognised the danger of the Commission's proposal. Parliament adopted the original proposal on First Reading—albeit with 28 amendments, some of which were designed to limit the impact on international sales. 374 The Commission has now produced an amended version, incorporating 21 of the Parliament's amendments in whole or in part.
One of the Parliament's amendments rejected by the Commission would have based the royalty on profit rather than selling price, with a lower threshold and a lower rate for higher-priced works. That would have reduced vendors' costs—a step in the right direction, although not enough to prevent damage to European Community art markets. New recital 5a of the proposal calls on the Commission to seek an international agreement on droit de suite. Clearly, concerns about displacement of sales would be removed if the EU's main trading partners also adopted the resale right. Unfortunately, international agreement is unlikely to happen in the time scale of the directive, if at all. In the meantime, our markets would be lost.
The Government have been successful in focusing the debate in Brussels on the economic impact of the resale right. The Commission's amended proposal was introduced at the one meeting on this subject under our presidency. It enabled the opponents of harmonisation to draw attention to studies made by my Department. Those have been circulated to all member states. We have called on member states to make, and to make available, cost-benefit analyses of their own.
We even have offered to help the Commission to prepare an impact assessment, although this offer has not been taken up. We will continue to press the offer on it. There is growing recognition among member states about the potential damage to the international competitiveness of Community art markets, and there is a realisation that the overall economy of the EU could be damaged. Nevertheless, most member states continue to favour harmonisation. Only the UK, Ireland and the Netherlands are opposed, although most member states have some difficulty with the wording of the proposal.
The Government will continue to discuss with colleagues in a proactive way the need for them to consider seriously the arguments we have put about the the damaging impact that the Commission's proposals would have on the European market. The Government support the internal market, but harmonisation must bring a genuine benefit to business and commerce. The proposal simply tilts the competitive advantage in favour of non-EU countries.
Harmonisation, if it is needed, would be better achieved by abolition of the right. However, we recognise that some member states have had the right for a long time. They do not want to give it up, and we have no wish to force them to do so. Equally, the Government do not see why the right should be imposed on us. The case for harmonisation has not been made, but the threat to a significant European Community market—the UK art market—is clear. The Government will continue vigorously to oppose this damaging proposal.
The Commission contends that its proposals for a banded royalty system, under which the royalty rate would be lower than the highest sale price, would avoid displacement risks. The Government disagree. For high-value works, the cost of the resale right would greatly outweigh the costs of sending works overseas to be sold, as well as discouraging the import of works for sale in London. However, the Commission is not entirely insensitive to the concerns and has chosen to incorporate the Parliament's new recital 5a in the amended proposal.
375 It is not possible to predict if and when a common position will be reached. Even if a common position is agreed, it is not possible to predict whether what has been agreed by the Council of Ministers under qualified majority voting would be acceptable to the European Parliament under the co-decision procedure. Currently, it is not yet clear whether there would be a qualified majority in favour of the proposal as it stands. Although those member states opposed to the measure in principle fall short of a blocking minority—for example, 26 votes—some other member states have problems with certain aspects of the proposal. In the meantime, we will continue to argue strongly against harmonisation.
We will not give up on the matter. We will have positive dialogue—if necessary, on a one-to-one basis—to persuade our colleagues of the rightness of our case in respect not just of the UK market but, as has been mentioned, the ripple effect across the whole market of offering a competitive advantage to those outside the market. That was the never the purpose of the single market harmonisation proposals. They were about giving benefit to those within the Community—not to those outside it.
The Government know the importance of listening to industry. It is central to our policies that we should develop partnerships and work together. Shortly after taking office, Ministers met representatives of the art trade. We understand their concerns for London's future as a leading international art market. We have made it clear to them and to others that we will continue our opposition and that we will maintain a regular dialogue.
I make this offer to the right hon. Members for Wells and for Cities of London and Westminster. I have an open-door policy on the matter. If, after today, there are 376 matters that I have not covered which they want to discuss—for example, internal market distortion issues, which it has not been possible to discuss in the time allowed—I should be more than happy to meet them collectively or individually. It is in all our interests to pool all our intellectual and Government resources to get a victory in the case that we have positively and eloquently put on behalf of the UK industry.
I would genuinely welcome the opportunity to work with both right hon. Members and the industry to try to ensure that the matter is resolved positively, and that there are none of the damaging effects that some people are trying to impose on our industry.
§ Mr. Heathcoat-AmoryI am most grateful for the Minister's positive response. We will do all that we can to get the trade to respond to his generous open-door policy. I was particularly pleased to hear him say that he regards the VAT threat and the droit de suite threat as two sides of the same coin, because the competitiveness and position of the British art market depend on the seeing-off of both those threats. The Minister clearly will not let them be picked off one by one; he regards them as a single issue. I am somewhat encouraged by the Minister's reply.
§ Mr. Deputy Speaker (Mr. Michael Lord)Order. I understood that the right hon. Gentleman wanted to intervene; he must not make another speech. Does the Minister want to respond to that intervention?
§ Mr. McCartneyI apologise, Mr. Deputy Speaker. Because of our common approach, I completed my remarks to give the right hon. Gentleman the opportunity to wind up, even though this is an Adjournment debate. I should have said that I was sitting down, but I now sit down again.