§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]9.34 am
§ Mr. Peter Brooke (Cities of London and Westminster)
My first, very pleasant, duty is to thank you, Madam Speaker, for the serendipity under which we meet this morning to debate the British art market, in the context of the European Union, within 15 days of a critical Council meeting of EU Trade Ministers, with the seemingly innocuous, but potentially devastating, subject of droit de suite on the agenda.
Secondly, I must again declare my own unremunerated interest as president of the British Art Market Federation, a body created in the closing years of the previous Government, at the request of that Government, to provide a single conduit for the market to make representations to the three Departments that share umbrella responsibility for different aspects of the market's affairs. In alphabetical order, those Departments are the Department for Culture, Media and Sport, the Department of Trade and Industry—appositely represented today by the Minister for Competition and Consumer Affairs, given that the Council of Ministers meets on 25 February—and Her Majesty's Treasury. I pay tribute to my hon. Friend the Member for South-West Hertfordshire (Mr. Page), who initiated the British Art Market Federation, and to the way that Ministers have acted to date on behalf of the market. I include the Prime Minister in that tribute.
Thirdly, I thank parliamentary colleagues who are attending this earliest of events in the parliamentary day. I risk sounding like the dodo in "Alice's Adventures in Wonderland" by saying that all have won and all shall have prizes, but I shall certainly embrace brevity in the hope that the maximum number of my colleagues can speak, and I hope that they will follow my example. I am particularly grateful to my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) for encouraging me to initiate this debate.
Although I risk playing the dodo, that charge cannot be laid against the British art market. The market's history goes back centuries, but its practices, services and scholarship are highly contemporary. Its integration with the continent is long and profound. If a flood of church art and church furniture left this country for the continent in the aftermath of the reformation, a similar tide returned during the neo-Gothic period of the first half of the previous century under the influence of the younger Pugin, who did so much to adorn this Palace.
236 If it is timely that we meet within 15 days of the Trade Council, it is also timely that we meet within 10 days of the 350th anniversary of the death of Charles I, whose martyrdom, in the eyes of some, makes him the putative patron saint of British art collecting—a practice that was reinforced by the grand tour of subsequent centuries. Continental artists and craftsmen have been as welcome here as they have been prevalent—from Rubens, Holbein, Van Dyck and Kokoschka to French carvers and Italian plasterers—and vice versa.
A peculiarly British contribution to the market is our genius, attributed to us by Bonaparte, as shopkeepers, which covers a multitude of skills and functions. The British Art Market Federation is made up of 15 different organisations and, if ours is a niche market, it is a larger niche than most: more than £2 billion is involved and it employs more than 50,000 people. The market can be read across into hotels, restaurants, other shops and theatres—many of which are concentrated in my constituency—as the magnets of our great art fairs bring foreigners from outside the European Union to London.
If that market leadership were a lonely issue, the preoccupation of the European Commission with level playing fields might be more tolerable. What is ultimately anti-European about the Commission's interest in the market is that the practical consequence will primarily be not to transfer business to the continent, but to move it inexorably from the European Union to the rival markets of Switzerland and the United States. Last week, elsewhere in this Palace, during the Standing Committee proceedings on the Greater London Authority Bill, I tabled an amendment stating that the mayor of London should pay due heed to London's global competitiveness. In the context of today's debate, a similar duty should notionally be laid on the Commission: to pay due need to the European Union's global competitiveness.
The great Bagehot remarked that in 1802 every hereditary monarch in the world was insane. In this year of grace, I do not want to lay such a charge against the entire Commission, but there is a manic quality to its thinking on the subject of our debate. Europe's economic welfare is not so well founded that we can afford to behave like Gadarene lemmings and cheerfully expel our traditional businesses to Geneva and New York. Why do I say that? Because, in a world of narrow margins, arbitrary transaction costs are slow poison to the competitiveness of even the healthiest of industries. The market here is threatened, first, by the charge of droit de suite—the imposition of an extra cost whenever a work of art changes hands up to 70 years after its creator's death. Colleagues will dissect the absurdities, contradictions and excesses of that apparently virtuous principle. It is threatened, secondly, by a doubling of value added tax in this country on works of art imported into the European Union.
My principal charge against the Commission is its unwillingness to face the reality that those moves will not enlarge the EU market; they will simply export trade and jobs to competitors beside Lac Léman and the Hudson river, who could be forgiven for scarcely believing their good fortune. The Commission has an obligation to us all to explain why that analysis is wrong. Its inadequate economic justification for the droit de suite proposal two years ago was subject to acute criticism, which in any intellectually rigorous climate called for a rejoinder, 237 but answer came there none. The analogous request from Her Majesty's Government for an impact study has been similarly disregarded.
The Commission was due to publish a review of the effects of VAT by the end of last year. There are rumours that it will dismiss the risks, but six weeks into the new year it has not been published. That might be charitably attributed to embarrassment about its intellectual rigour, too.
The great artist, Max Ernst, told the story of how his father had painted their garden omitting a tree for reasons of composition, but had then been so troubled by what he had done that he had gone out and cut down the tree. That story has two morals in today's context: first, that we are in danger of needlessly cutting down one of the great trees in the European forest; and, secondly, that the event is not being attended by the intellectual rigour that Max Ernst's father displayed.
One rejoinder that the Commission might make is that the percentages are small and their effect is being exaggerated. By the same lucky chance that is giving us this debate, last Saturday our television screens showed a film of that European cockpit, Yugoslavia, during the last war. A black American soldier complains to Edward Fox that his high explosives seem to have had no visible effect on the dam that they seek to blow up. Edward Fox languidly replies that he must not be in a hurry—the dam is very large and the high explosives very small; the high explosives will create a wound through which nature will then do its work. Just such a sequence of events threatens the British art market, and thus the European art market as well. Initially, the effect may seem small, but the nature and essence of markets will ensure that, in the fulness of time, the imbalance of costs will transfer advantage massively outside the European Union.
The percentages may seem small, but they deter trade. In a world where 70 per cent. of the droit de suite paid in France in 1996 went to the six or seven impressionist families, a small percentage of a large sum would still be massive.
What are we asking of those on the Treasury Bench? My right hon. Friend the shadow Chief Secretary, whose pamphlet last year did much to illuminate the issue, will spell out the official Opposition's view. My plea, which is understandably on behalf of the British Art Market Federation, is for time. Time in the EU means derogations—a derogation of decent length in connection with droit de suite, if that directive is to come, and an extended derogation for VAT. I ask for time because, in the recent past, time has not been used by the Commission, to use my metaphor of the dam, to test the dam to see how genuinely secure it is against the flood waters moving out of the EU, as the ecclesiastical furniture moved out of this country in another period of seismic European development after the Reformation.
I close on a personal note. I have lived thrice on the continent: twice within the European Union and once outside. I have no little sympathy for the European ideal, but it troubles me when I see us collectively acting contrary to Europe's best interests in creating an unnecessary level playing field, as in the garden of the Ernst family. Composition has much to recommend it, but global competition is ultimately all. However, my views 238 are as nothing compared to the frustration and sadness of the natural internationalists who make up the art market in this country.
A moment ago, I mentioned Yugoslavia. One of the taproots of our European culture is the Homeric saga of the Trojan war, excavated by a great German scholar. Contemporary scholarship says that that war was about competition for trade routes rather than possession of a great beauty. It would be sad today if we were to lose not only the trade routes but the beauty.
§ Mr. Tam Dalyell (Linlithgow)
That eloquent and elegant introduction by the right hon. Member for Cities of London and Westminster (Mr. Brooke) encapsulated the problem. It now behoves me to be succinct.
Incidentally, Madam Speaker, one of the shortcomings of these one-hour-and-25 minute debates is that Ministers are rarely given an adequate time to reply. The Minister in this debate has a great deal in the opening speech to which to reply.
§ Mr. Dalyell
Exactly, but Back Benchers deserve a reply to their questions; thus my speech will be in the form of questions.
The issue of droit de suite—part of the copyright law in several other EC states, which entitles artists or their heirs to receive a payment whenever an original work of theirs is resold while those works are in copyright—presents problems. What discussions have taken place with our European partners about their copyright laws? This issue is crucial to VAT harmonisation, which is partly at the root of the problem.
My second question concerns resale rights. The Government have described how, during our presidency, the UK was able to call for other member states to make cost-benefit analyses, and for the Council working group under future presidencies to study those. The then Minister, my hon. Friend the Member for Leeds, West (Mr. Battle), said:even the Commission has accepted that royalty rates need to be looked at carefully.In December, the then Minister for Arts, my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher), spoke to the French Minister of Culture, Mrs. Trautmann, who said that France had not made a study of the resale right but would ask the Commission to make one. What has happened about that?
My third question concerns an answer from my hon. Friend the Minister for Competition and Consumer Affairs:The draft Directive on artists' resale rights is expected to be on the agenda for the Internal Market Council on 25 February. While a large majority of member states, unlike the United Kingdom, support the principle of harmonisation in this area, it is not yet clear whether it will be ready for agreement by then. The Government are continuing to make clear their opposition to this measure, and are working to try to minimise the damage it would do to the competitiveness of the UK's international art market."—[Official Report, 8 February 1999; Vol. 325, c. 51.]That raises the question of the 2.5 per cent. and the 5 per cent. As the right hon. Member for Cities of London and Westminster said, 50,000 people are involved—the 239 art industry is bigger than the music industry. The many related services, not only in London but in other centres such as Edinburgh, include picture restorers, framers, conservation specialists, shippers, insurers and exhibition organisers. Many substantial jobs are at stake, and the multiplier effect goes—I shall not say across the economy, as that would be to over-egg the pudding—very widely.
My fourth question concerns VAT and paperwork. May I ask a heretical question? Is it desirable for Europe to have VAT on works of art at all? The sum of it is that we lose out to Switzerland, and certainly to the United States. Is not import tax inappropriate? European Governments might get more into their treasuries out of returns from a healthy art market than they do by messing around with import tax.
My final question is on a slightly different issue. It concerns fraud and theft in the art market, which is a growing problem, especially in relation to bespoken theft. There are now specialists who do feasibility studies on action in transport getaways, break-ins, decoys, and all the other elements of highly professional art theft. I know that the Art Loss Register and James Emson do extremely good work. What is the police strength? Can my hon. Friend the Minister get figures from the Home Office on the seriousness of purpose of the police in this matter? I understand that art police resources have improved greatly in the past few years, but a decade ago they were deeply unsatisfactory.
As an example of the professionalism of art thieves, I point out that, at the time of the recent attempted theft at Belton house, if the police vehicle had gone at full speed down a particular lane, the police would almost certainly have sustained fatal casualties. Such are the lengths to which the perpetrators of the planned seizures of treasures go, and there is a huge amount of money in it for them. Are the police serious about counteracting these crimes? This is not an absolute police priority—that would be silly—but can the Minister tell us what is being done about this problem?
What about the artefacts that are coming in from eastern Europe? The hon. Member for South Staffordshire (Sir P. Cormack) used to lead the all-party arts and heritage group. I vividly remember visiting churches in Czechoslovakia, some of which were locked and others from which many artefacts had been stolen for the Amsterdam, Frankfurt or London art markets. The icons from eastern Europe—not least from the former Soviet Union—flooded out from the places in which they belonged. That is a serious matter for anyone who is concerned about the European heritage. Can anything be done about that? That may be easier said than done, but it is a real problem.
§ Mr. Robert Maclennan (Caithness, Sutherland and Easter Ross)
I have little to add to the eloquent plea made by the right hon. Member for Cities of London and Westminster (Mr. Brooke). The debate is timely, because the decisions of the Commission are imminent. The case that the right hon. Gentleman deployed was opened most forcefully last year by the right hon. Member for Wells (Mr. Heathcoat-Amory), who I think will contribute to the debate later. We are grateful to him for focusing on this threat to a major British trading activity.
240 Is the Minister aware that these impending measures have already substantially transferred business from this country to the United States and Switzerland in anticipation of the almost inevitable—as it is perceived by the art market—development of the tax regime, especially the ending of the derogation from the sixth directive at the end of June this year, which will increase the VAT on imports from 2.5 to 5 per cent? It is my understanding that that measure can be reversed only if there is a unanimous decision of the Council to that effect, and such a unanimous decision is thought unlikely.
It is important that the arguments against the ending of the derogation—I add my voice to that of the right hon. Member for Cities of London and Westminster in seeking prolongation—are carefully rehearsed, and that the case that may be argued by the Commission is answered point by point. If, as the right hon. Gentleman has suggested, its case is intellectually unsound, it should be answered by a strong rebuttal from Her Majesty's Government.
I am aware of some of the arguments by Directorate-General XV about the impact of the droit de suite proposals, but I have not yet been able to elicit from the Commission the arguments that it is deploying about the impact of value added tax. It is perverse of the Commission to proceed with this proposal in the mistaken belief that it is in the interests of the European Union to have common rates of tax on important works of art when the sole consequence, as the right hon. Gentleman properly explained, will be to damage European trade for the benefit only of those trading outwith the continent.
§ Mr. Anthony Steen (Totnes)
The right hon. Gentleman says that the proposal will damage European trade, but is it not also true that it will damage British trade more than that of any other European country?
§ Mr. Maclennan
I believe that it is correct. However, as we must persuade 14 other Ministers of the virtues of our argument, it may be best to couch it in European terms. I do not disagree with the hon. Gentleman's assessment, however.
§ Mr. Geoffrey Clifton-Brown (Cotswold)
Is not the real kernel of the argument that, although Britain will suffer the most, the European Union will also suffer? The 5,000 jobs that will be lost in Britain will not be redistributed to Europe: they will go to auction houses outside Europe, notably in Switzerland and the United States.
§ Mr. Maclennan
That is exactly the point; it has already been made, so I do not wish to labour it.
Will the Minister use his influence to prevail on the European Union and the Commission to make their case transparent, for there is still time? If the arguments are to carry any weight—the matter should not be decided merely on the basis of Britain's interests alone—the Commission's view should be published. We have not yet had the conclusions of the inquiry. I understand that the inquiry is being led not by Directorate-General XV, 241 which has some responsibility for the art world, but by Directorate-General XXI, which may have less direct understanding of these matters.
The harmonisation of droit de suite is a peculiarly perverse proposal. There is little evidence that droit de suite has been of great benefit to young artists, for whose assistance it was primarily devised, in the countries in which it operates—I am thinking particularly of France and Denmark. Indeed, young artists in this country have little expectation of deriving benefit from the proposal. They have expressed to a number of us the view that the complexities of seeking to raise and police such an operation are not worth the candle. Although it may benefit a handful of our most distinguished artists whose works command a high price in the secondary market, such as Mr. Lucian Freud, it will not give a great leg-up to young artists who are trying to make a living and establish a reputation, and for whom secondary market values are probably low.
§ Mr. John Townend (East Yorkshire)
As a spokesman for probably the most Europhile party in the House of Commons, does the right hon. Gentleman accept that it is appalling that a British industry of this size should be destroyed or, at best, severely undermined, and there is nothing we can do about it? Have we not transferred too much sovereignty, if we are putting people's jobs and industry at such risk?
§ Mr. Maclennan
I do not see the necessity for that intervention. The thrust of my remarks is criticism of what is proposed, and I feel that the hon. Gentleman's added emphasis would be more appropriately deployed in his own speech.
I am wholly opposed to this development. I do not think that the droit de suite is a practical or sensible way to try to assist young artists, or that the House need trouble itself with those who are already well established. The scheme has been relatively ineffective in the countries where it already operates; it has been hard to police, and I understand that a number of the companies involved have gone bankrupt. I think that the European Union is foolish to try to translate the scheme from one or two countries to all EU countries. This is not a suitable area for harmonisation, and the proposal should be resisted for that reason.
§ 10.1 am
§ Sir Peter Lloyd (Fareham)
I congratulate my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) on securing the debate, and on making his case so thoroughly, wittily and cogently. I would like to say that his speech was also timely, but I fear that the die is cast—although I hope it is not. We shall soon see.
The British art market is of world significance, second only to that of New York. It gives employment to upwards of 40,000 people, in supporting professions and skills. My right hon. Friend's speech showed what disaster the ending of the derogation, the doubling of value added tax to 5 per cent. and the imposition of the droit de suite will bring in their train. We know that those developments will be disastrous. When VAT was first imposed at 2.5 per 242 cent. in 1994, business from non-EU countries fell sharply. It is not that 5 per cent. is high as such things go; but the international art business can easily migrate to where the tax regime is favourable. Why should anyone continue to buy, sell and auction in London when it can be done far less expensively and with much less red tape in New York or Zurich?
If the business lost to the United Kingdom were, as a result, distributed more evenly around the EU, there would be some logic in the EU's plans, but the rest of the EU will gain nothing—except, perhaps, a little more VAT, at the expense of jobs and the income tax that those jobs provide in the UK. The planned levy—the droit de suite—on modern art sales, to enable the artist or, in most cases, the artist's heirs to benefit from the artist's continuing popularity and every successive sale of his work, will have a similar effect, driving business out of London and out of the EU. Switzerland and the United States have no such levy, and buyers will go where they do not have to pay it.
If the levy really did help and encourage struggling artists, there would be some sense in it, but in France—where, as my right hon. Friend observed, there has long been such a levy—the money goes largely to the estates of rich and successful artists after they are dead. It is of little assistance to struggling artists with no early resale expectation, whose resale potential, such as it is, will no doubt be discounted in the prices that they are currently obtaining. It will generally be of use to them only after they have become rich and successful—by which time they will probably have died.
If those two measures are implemented, they will make nonsense of the argument that the EU's central mission is to achieve a world-competitive European economy. They will destroy London, which has already been damaged by the original imposition of VAT in 1994, as an internationally competitive art market.
§ Mr. David Davis (Haltemprice and Howden)
My right hon. Friend has spoken of the vital importance of the industry to the United Kingdom, and the damage that could be done to it. The Luxembourg convention, which exists for qualified majority voting procedures, is designed to protect countries' vital national interests. Should it be invoked in this instance? Should Britain make the point that the industry is a vital national interest, and ask the EU to drop the qualified majority voting approach? France did that twice while I was a Minister.
§ Sir Peter Lloyd
The industry is certainly a vital national interest, and one that is particular to this country, although it benefits the whole of Europe. It is this country that receives the trade that benefits the rest of the European Community. I shall say more about that, and I hope that the Minister will be able to tell us more than we already know.
The European Union presents itself as wholly respectful of, and encouraging to, the special character and skills of member countries. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) implied as much in his intervention. It is extraordinary that, in this case, the EU appears to be intent on annihilating a particularly successful aspect of British cultural and commercial life for the sake of the hobgoblin of bureaucratic consistency. It seems that the European Commission may again be 243 teaching us the lesson that, in the EU, a derogation—however justified in common sense—is seldom a final victory for common sense. All too often, it is a defeat for common sense temporarily postponed.
I understand that the Commission was going to review the issue thoroughly by the end of last year, but that has not happened. Certainly, no review has been published. I hope that the Minister will tell us that a review is on its way. I hope that he will be able to convince the House that I am too pessimistic, and possibly too cynical, and that the Commission is thinking again, and will come up with constructive proposals that enable the London art market to survive and flourish. Failing that, if the Commission has not yet seen the light, I hope that the Government have at least brought together a blocking minority of fellow member countries that have seen the light, or that they are considering invoking the Luxembourg compromise.
If the Government are serious about protecting British interests in Europe—as they say they are—and, in this instance, protecting the overall long-term interests of Europe, they will already be taking such action. I am sure that the Minister will want to let us know what is happening.
§ Mr. Steen
Might not the Government also consider asking the Commission to pursue the fiche d'impact? I believe that European law obliges the Commission to pursue it in the case of all directives or rules and regulations that have an impact on European countries. It has to conduct a study to show the effect that a directive, or rules and regulations, would have on employment or trade in all European nations. Should the Government try to persuade the Commission that it should not proceed with this arrangement until it has carried out a fiche d'impact? I believe that, if the Government have not done so, they should.
§ Sir Peter Lloyd
There are a number of things that the Government could do. I am happy to serve as the vehicle for my hon. Friend's question to the Minister, and I look forward to the Minister's answer.
§ 10.9 am
§ Mrs. Virginia Bottomley (South-West Surrey)
My first objective is to strengthen the Minister's determination to fight this case. Secondly, I want to congratulate my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) on his eloquent and effective speech, in which, as ever, he deployed all his skills. Not only is he, like me, a former Secretary of State for what used to be National Heritage; he is a former Treasury Minister, and a former Whip. His skill in that last regard can be seen from the fact that he has been able to produce so many hon. Members for today's debate. Thirdly, I intend to make the shortest of this morning's speeches.
When I was Secretary of State for National Heritage, I was inevitably overwhelmed by people who were looking for cash handouts. Supporting arts, sport and heritage is part of the Government's responsibility—the national lottery makes it easier—but it is also to create a climate in which successful cultural industries can flourish.
The British art market is one such formidably successful industry. It is not looking for cash handouts, 244 but it needs a regulatory system that respects its independence and effectiveness. Above all, it needs Ministers who will fight its cause. I pay tribute to my colleagues in the Department of Trade and Industry and in the Treasury during my time in office, who were part of that determined campaign.
As has been said, we face an extremely serious position. The industry is not only an enormous cultural asset, but a great commercial contributor—it provides up to 50,000 jobs. Many businesses are involved—not just the great four of Sotheby's, Bonham, Phillips and Christie's, but many other smaller and expert industries, restorers, valuers, dealers and galleries, which in themselves feed further into the tourism industry, which has become so important.
Two issues have no logic or sense. It has been made clear that the imposition of the 5 per cent. VAT on imports would simply benefit New York, Switzerland or the far east. The droit de suite would bring precious little benefit to young artists, and there are many other ways to assist them.
At a time when there is growing hostility to the idea of a Europe led by ideology, it is enormously important for the Government to act now on the basis of the evidence and of pragmatism to safeguard an industry that is vital to Britain and to our people.
§ Mr. Ian Taylor (Esher and Walton)
I support the condemnation by my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) of the Commission's proposals. I do so with some sympathy for the Minister for Competition and Consumer Affairs. I was his predecessor in the previous Government and dealt with these matters. It is appropriate that a Department of Trade and Industry Minister is on the Front Bench, because the issue stems from the whole genus of measures that come under copyright.
I agree with my right hon. Friend the Member for South-West Surrey (Mrs. Bottomley). The industries that are covered by copyright, and for which it is important that intellectual property is protected, are among those that do most to benefit the British economy. They include the music industry—the commercial aspects of which I was also responsible for—publishing and many others. They are at the heart of what we have been proud to achieve in European and world markets. We send an important message to the public in not overlooking the contribution that those industries have made to our commercial as well as cultural life.
When I was upstairs in a Standing Committee at the beginning of 1997, my right hon. Friend the Member for Cities of London and Westminster also made a forceful presentation of the case for the British art market. There is no doubt in these circumstances that the Commission has made a monumental error. I rapidly say that I happen to be one of those Conservatives who is a Europhile, and that the Commission is important for us to carry out our objectives within the single European market. As a general point of principle, without the Commission, 245 we would not have made tremendous progress in the European Union in breaking down trade and non-tariff barriers.
§ Mr. Dalyell
As a fellow Europhile, may I ask the hon. Gentleman a matter of fact? When he was dealing in a ministerial capacity with Commissioner Monti, what did commissioners say in defence of the droit de suite?
§ Mr. Taylor
Commissioners said a great deal. Commissioner Monti and the Internal Market Council had many discussions on those matters, none of which was convincing. As my right hon. Friend the Member for Cities of London and Westminster has said, their undertakings to come forward with further evidence and documentation did not materialise, certainly not while I was a Minister.
As someone who is not, in principle, against the Commission, I hope that the House will bear with me when I say that the Commission is not always infallible. On this occasion, it has been fallible. It has made a mistake about harmonisation of a sector where the damage will be to the European Union as a whole, and specifically to one member country—the UK.
There seems to be an argument for looking at taxation across the European Union and for saying that there are cases where harmonisation will improve the competitiveness of the European Union, but proposals should not be made to try to create harmonisation if they damage one country and do not benefit others in the European Union itself. That is a more communautaire view than that being expressed by Commissioner Monti.
I want to assist the Minister in the deliberations in which he will be involved in the next few days. Does he know from the legal advice that he is receiving whether the proposal has been made under the right article—100A? I was nervous of attempting to label it a taxation measure because I feared that that may not count in our interest in the long term, but I would nevertheless be interested in what the Minister has to say.
Has the Commission attempted to show that those countries that have not applied the artist resale right have done that because it does not work in favour of those whom they most hope to benefit—the struggling artists—and tends, as has already been said, to apply only to the estates of dead artists who have been extremely successful? Has the Commission examined the way in which the art market will move off shore, either to Geneva or to New York, as it undoubtedly will? It will probably not move to California because it has a levy; there is an internal distortion in the United States market. Nevertheless, that is a matter for the United States, not an argument that the Commission can use. That is why I raise it; I know that the Commission has used it.
Those are serious questions. I am not sure that the Commission has done its homework since the days when I was attempting to put pressure on it. The matter is too important for the art market in the UK, all the jobs that it provides, the prospects for the art world and Britain's role in the world.
I hope that the Minister can give more up-to-date information than was available to me when I left office. I hope that he will use every endeavour to put across that 246 we make not an anti-European criticism, but a criticism of the way in which the Commission is applying certain principles. We must stand up against its making that mistake. If it makes it, the Commission will damage its credibility on a much wider basis.
§ Mr. James Gray (North Wiltshire)
It is an honour to follow my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke), whom I congratulate on securing the debate on such an extraordinarily important issue. It is also a great honour to follow so many other distinguished and eloquent right hon. and hon. Friends on the Opposition Benches and hon. Members across the Floor. I am particularly grateful to them for their concise, brief contributions, because that allows less distinguished Back Benchers to get a word in edgeways, which, as Madam Speaker made clear earlier, is the purpose of such debates.
The debate is broader than simply the issue of art. It is about the way in which we tend to talk about many difficult and different political issues. In the world and in the Chamber, we tend increasingly to use single, often meaningless, words to try to encapsulate the things that we are getting at.
For example, the word "modernisation" is uttered in the Chamber more often than any other word. It is, of course, entirely meaningless. All Governments modernise everything. "Equalisation" is another oft repeated word. It seems to be presumed that equalisation is necessarily a good thing, but it may mean making things worse—equalising down. Integration may mean forcing together into one place things which should be different. Harmonisation is perhaps the greatest of those meaningless mantras that Europhile friends tend to use so much. They suggest that harmonisation is necessarily a good thing, but today's topic amply demonstrates that it is not and that the Government should stand up for British, not European interests. We have a strong art market which is the envy of the world and the mantra of harmonisation could lead to its destruction.
Either of the tax proposals before the Commission would damage the art market, but together they could destroy it. In that context, and given that there has been no economic analysis of their effects, it is quite extraordinary that the proposals got off the starting block. They provide a bizarre window into the workings of the European Commission, which produces politically correct, wonderful sounding ideas, for example, that tax harmonisation will help young artists. They all look marvellous on paper, but the costs have not been considered. What progress has the Minister made on asking the Commission to look into precisely what the proposals would mean for the British art market?
Once again, Britain seems to be at the receiving end of the rawest deal from the European Union. We are expected to sit back and say, "This is all fine. Harmonisation is marvellous. It is the European Union at its best. Okay, chaps. Crack on. Qualified majority voting is fine. We'll lie down and take it." Perhaps this should be the issue on which the Government should say, "No. Hang on a minute", as Baroness Thatcher, with her handbag, did so memorably on the subject of the rebate. We ought to take a stand. It may be a small issue, but it may be the one on which the Government should stand up and say, "Enough is enough. We intend to go no further."
247 All our European partners—I am not sure that I like the word partners—have so much to gain, but we have so much to lose as the proposals would do down the London art market. Unlike us, they do not care what happens to the international art market because they play just a small part in it. Our art market is unique in Europe and we should stand up for it.
If the Government are looking for a cause to demonstrate their clout in Europe, about which they brag so often, what about this one? Perhaps they should stand up and say, "Okay, Europe. We are going to make you listen and do something about this iniquitous tax." Both proposals are entirely indefensible and would damage an immensely successful and internationally renowned British industry.
§ Mr. Ian Taylor
My hon. Friend used the word "tax". Is he absolutely certain that it is a tax and involves the Exchequer, or is it a levy? Precision is quite important when the Minister has to raise the matter at the Internal Market Council.
§ Mr. Gray
My hon. Friend is quite right. I used the word loosely. I was referring to VAT derogation, which is a tax. However, the provision which I tend to refer to as "droit de seigneur", although that that is not quite the right expression, is a levy rather than a tax. I apologise to my hon. Friend, who is quite right.
In the circumstances, the Minister's response in a written answer to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) was unsatisfactory. He said:The Government … are working to try to minimise the damage it would do to the competitiveness of the UK's international art market."—[Official Report, 8 February 1999; Vol. 325, c. 51.]The Minister referred to minimising the damage, not stopping it. He did not say that Britain would not agree to the proposals, but appeared to accept that they would be introduced and was looking for ways to minimise their damage. If the Minister intends to do something to stop the iniquitous proposals from Europe, his answer to my right hon. Friend was weak and he should correct it.
At the Internal Market Council on 25 February, I hope that the Government will make it clear that we shall have none of it and that through our high-level contacts we shall seek enough allies in Europe to stop the proposals. I understand that the Italians may be considering voting with us. Perhaps the well-known hotline between No. 10 Downing street and the Prime Minister of the Italian Republic could be used usefully on this occasion, not to help Mr. Murdoch but to help the London art market.
I call on the Government not just to pay lip service to the marvellous mantras of which they are so beloved, but to help one of our key British industries—the British art market—and to do something on 25 February that will not necessarily help Europe, but will help Britain.
§ Mr. Andrew Tyrie (Chichester)
I congratulate my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) on securing today's debate. My interest in this issue goes back to when I was briefly special adviser to the Minister for the Arts in the mid-1980s, but it was revived in the autumn when I found myself in a fourball, playing golf with the finance director 248 of one of the major auction houses. He told me in a very matter-of-fact tone of his plans for the auction house to move abroad, with most of its business going to New York and some to Geneva, if the EC proposals were implemented. So he already had contingency plans well in hand. Of course, auction houses want to move outside any zone where European regulation may be imposed on them as a result of the droit de suite.
We have all heard the arguments and almost everyone agrees with them. Clearly, VAT at 5 per cent. will drive away business. VAT also causes enormous administrative hassle. The droit de suite will not have the effects intended for it. It does not benefit artists, but their children or grandchildren as it lowers prices in the primary art market. Like VAT, it also drives business abroad and was rejected as an approach by the Whitford report on copyright on the grounds that it would be unenforceable as some of the art market would go underground and the rest would go abroad. Today, we all agree that droit de suite would be a disaster.
A major task rests with the Government to provide as much information as possible by answering many of the questions that have been raised today. That would enhance the force of the arguments that Britain could make against those measures.
Let me summarise some of the questions that the Government should try to answer. On VAT, what estimate have the Government made of the encouragement of the repatriation of our cultural heritage that resulted from the absence of VAT prior to 1994, and the imposition of the seventh VAT directive? A similar question for the Government is their estimate of the contribution that 2.5 per cent. VAT is now making to the decline in imports since 1994. What is their estimate of the effects that raising VAT to 5 per cent. would have on art imports? Will the Government press the European Commission to publish its promised study on the effects of VAT on art imports? I understand that it was promised by the end of 1998, but it is still not forthcoming. Will the Government try to negotiate an extension of the derogation to keep VAT at 2.5 per cent. at least until the Commission has published its report and its conclusions are digested?
Can the Government confirm that they are still convinced of the harmful effects of droit de suite and its perverse and damaging effects on artists and the art market? Will they carry out a short study on those issues and publish their findings so that there can be complete clarity as to where they stand? Is there any scope for challenging the fact that droit de suite is being brought forward as a trade measure by the European Commission and is therefore subject to qualified majority voting, when logically, as has been pointed out by several hon. Members, it should be treated as a tax measure? Will the Government undertake to make further representations that it should be covered by the unanimity principle? If that is not possible—and perhaps it is not—what efforts are the Government making to try to secure a deal with another major European country in order to secure a blocking minority under qualified majority voting? The Dutch are already allies. Probably there are one or two other allies around—the Irish perhaps. One more major country as an ally would secure a blocking minority.
If we fail in that action, have the Government considered—as my right hon. Friend the Member for Haltemprice and Howden (Mr. Davies) asked a moment 249 ago—whether there is any scope for using a Luxembourg compromise? What are the Government's views on the scope for use of a Luxembourg compromise in this case?
I believe that getting the facts into the open as much as possible will do most of the work for all of us in securing, or impressing, Britain's case on the Commission. If our case does not prevail, the losers will be clear—in lost jobs and tax revenue, and the loss of a centre of excellence, which will go abroad.
When I was on the golf course, I was struck by how relaxed the finance director of the major auction house was. Of course he was relaxed: he has his plans to go abroad well in hand. He does not really want to live abroad, but he will do so if necessary. Senior members of auction houses will go abroad. Although thousands of jobs will be lost, those right at the top will not lose theirs. People at the top of auction houses would rather stay in London—as moving would entail an economic cost in upheaval and a risk of losing business—but they are not the ones who will be hit hardest. The people who will be hit hardest are the people of Britain, who will lose jobs and a centre of excellence.
§ Mr. Geoffrey Clifton-Brown (Cotswold)
I have been asked to speak in this debate, and shall make a very short speech. However, before I launch into the debate, I should congratulate my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) on securing this debate, which is timely.
The more one looks into the matter, the more nonsensical it becomes. As from 1 July, the seventh VAT directive will come into operation; tax on imported art from countries outside the European Union will be increased from 2.5 to 5 per cent.; and the derogation agreed on 13 December 1993 will end. Therefore, time is running out on the matter.
I ask the Minister what representations he has made to the Commission; whether a fiche d'impact has been prepared; and whether an impact assessment—which, under the terms of the seventh directive, was supposed to be completed by the end of 1998—has yet been received by the Government? If the Government have not yet received an impact assessment, we should ask the Commission for more time to implement the derogation. I hope that the Minister will be able to refer to that when he replies to the debate.
The British art market is worth £2.2 billion, is larger than the entire music industry market and provides about 50,000 jobs. The two proposals will put at risk a minimum of 5,000 jobs. Britain would lose those jobs essentially because we have the second most important art market in the world. It would be one thing—in a communautaire sense—if those jobs were to be redistributed across other parts of the European Union, but that will not happen. They will simply be lost to Switzerland, New York, Hong Kong and other art centres. The seventh directive therefore seems to be based on pretty thin ice.
We are considering also the droit de suite, which is a French term. I rather prefer the term "artists' resale right", which seems to have a more English ring to it. If we are to have an English tax, let us have an English, not French name for it.
250 It would be a different matter also if the tax were to benefit the general art market, but it will not. It will benefit comparatively few young artists' families, who could benefit in other ways. The problem with the droit de suite is that it has very high compliance costs, which alone are estimated to involve an income loss of £68 million.
Implementation of the VAT seventh directive to increase, from 1 July, VAT on imported art to 5 per cent., and the introduction of the artists' resale tax, will have a very damaging affect on the British market. I should therefore like to spur the Minister—in a cross-party and common-sense spirit—to ask the Commission again to re-examine the matter. After all, just before the 1997 general election, Commissioner Monti wrote to my hon. Friend the Member for Esher and Walton (Mr. Taylor) and said that he would very carefully examine the assessment of the measures' impact on Britain. He should live up to his words.
The Minister, the Prime Minister and other ministerial colleagues have already raised the issue with several fellow countries to determine whether a blocking minority might be obtained to ensure that the derogation is continued. I urge the Prime Minister and the Government to use every possible effort to discover whether we cannot find some common cause on the changes, and to ensure that their most damaging aspects are not implemented.
§ Mr. David Heathcoat-Amory (Wells)
On behalf of the House, I should like to thank my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) for securing this debate, and for introducing it with his customary erudition and wit. He spoke not only for his own constituency—although he does represent perhaps the greatest concentration of dealers and auction houses in the world—but for the wider art market, which, as the hon. Member for Linlithgow (Mr. Dalyell) reminded us, extends way north of the border. We are speaking today not only for the great names in the art market but for the associated industries and the network of dealers and galleries across the United Kingdom, which employ upwards of 50,000.
A great British success story faces a serious and immediate threat not from any failing in its own endeavours—it is still the greatest and most competitive art market, certainly in Europe and possibly in the world—but externally, from two imposed taxes. My right hon. Friend the Member for Cities of London and Westminster has succeeded in his debate in uniting the entire House behind his cause. That is never an easy thing to do, but it has been done today. We have heard powerful and well-argued speeches from hon. Members on both sides of the House, representing every sector of opinion in the Chamber.
As we have heard, the threat we face comes from two directions. The first threat is the proposed doubling, from June 1999, of VAT on imported art. I repeat a question that other hon. Members have asked the Minister: where is the European Commission study that is required by treaty law before the change is made?
We know that, even with a VAT increase of 2.5 per cent., damage has already been done. The right hon. Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan) said correctly that anticipation of the higher rate and of the droit de suite is already doing damage to the London and United Kingdom art market.
251 The second threat is the proposed resale levy, or droit de suite, that will be charged on the resale of works of art by any living artist or for 70 years after the artist's death. I believe that that is a fiscal measure—a tax—and should not have been introduced as a trade measure. Whatever it is called, its effects are clear: objects for sale will simply be transferred from the United Kingdom and out of the European Union. The levy savings realised by removing valuable objects for sale to New York will be greater than any possible freight costs or associated transfer charges.
The proposal encompasses not only paintings, but sculpture, manuscripts, tapestries and even photographs. The artist will receive nothing from the proposal. Either sales will be driven underground, by private treaty between individuals, or objects and paintings of any value will be transferred out of the European Union entirely. The proposal is crazy, defies common sense and will not help the European Union in any way. The beneficiaries will be dealers in New York, Geneva, Tokyo and every other part of the world.
The proposal is baffling. Dealers in New York are rubbing their eyes in disbelief at the Marshall aid in reverse. The European Union is proposing a measure that will quite certainly and deliberately transfer business, profit and employment from the European Union to north America. That is being done by the European Commission—supposedly the guardian of European interests. The Commission says that London has an unfair advantage by not having the droit de suite, and that sales are transferred from Germany and France to London. By exactly the same logic, if London has the levy forced on it, sales will be transferred out of the European Union altogether. The Commission is condemned according to its own logic.
My hon. Friend the Member for Esher and Walton (Mr. Taylor)—who comes to these matters with a sympathetic point of view—realises that the Commission has got it badly wrong. Of course, it is not the Commission or the staff in Brussels who will suffer—it is the London art market. It will not be the owners of the auction houses who suffer. The Commission has said, dismissively, that the entire campaign has been got up by Sotheby's, Christies and the big auction houses. They will not suffer—they already have salerooms in New York, and more auctions will be transferred there.
Those who will suffer will be the office staff, the experts, the packers, the porters and the associated industries—the framers, the restorers, the printers of documents and the little galleries associated with those businesses. They cannot move, and they will suffer. The Commission has a harmonising agenda. It does not have in mind the national concerns of member states.
§ Mr. Heathcoat-Amory
If my hon. Friend will forgive me, I will not give way. I am trying to answer some points made in the debate. We only have a few minutes, and we want to hear from the Minister also.
It is to the member states that we ought to turn to defend national interests. That brings to the fore another baffling aspect of this whole affair. Why is the German presidency bringing forward the measure? Is it stupidity? Does Germany not realise the damage that will be done 252 to employment and the interests of the European Union? I do not think so. The matter has been exhaustively discussed in working parties in Brussels, and I know from previous debates that the Government are fully engaged in the matter.
To be fair, I was impressed by a debate that we had last July when the Minister of State, Department of Trade and Industry, the hon. Member for Makerfield (Mr. McCartney), showed a thorough grasp of the issue and acknowledged that great damage would be done. He estimated that if the measure went ahead, we could lose earnings of up to £65 million a year, resulting in 5,000 job losses. He pledged to fight the measures. I am grateful for the way in which the Government have become engaged in the matter. It has been explained to the Council of Ministers exactly what is at stake, and there are many academic studies to back up our view.
I do not want to be misunderstood in what I am about to say. I admire modern Germany, and I am very slow to question the motives of either the European Commission or other member states. However, as they are proceeding in full knowledge of the damage that will be caused—which has been backed up by countless studies and many debates—I must conclude that this is a calculated attempt to damage an important British industry. If that is not the case, let us have an explanation. There may be resentment or jealousy that the British art market, centred in London, is somehow not fully European and perhaps gets its trade from a global market—perhaps too much from north America. That is the only explanation.
If that is true, the Council of Ministers, in two weeks' time, will be engaging in an act of quite unnecessary industrial vandalism. For the German Government to bring forward this measure under their presidency is curious. We know that the German Government were elected on a pledge to reduce German unemployment by 1 million. Sadly, that has not happened—German unemployment has risen to 4.5 million. The measure will not create jobs in Germany, but it will destroy them elsewhere in the EU. How can an organisation and a member state be proceeding with a measure that will cost European jobs, as has been proved in this short debate?
The matter is extremely urgent. The Internal Market Council meets on 25 February. As my hon. Friend the Member for North Wiltshire (Mr. Gray) said, now is the time to take a stand. The day after that Council meeting, the Council of Ministers meets in the form of a European Council, when all heads of state and all Prime Ministers will meet to discuss the European budget. Let the Prime Minister of this country use this as an example of the European Union damaging itself by allowing the ideology of tax harmonisation to overcome common sense and the commercial interests of member states.
I ask the Minister to request formally the Internal Market Council to postpone by one day its deliberations so that the matter can be raised at that higher forum. I believe that this matter should be the subject of a Luxembourg compromise. As the House knows, this is a mechanism whereby a measure brought forward under majority voting can nevertheless be subject to a national veto where important national interests are at stake. The mechanism has been invoked by other countries, including France. It should be invoked in this case.
The Prime Minister has said that he has influence in Europe. Let us see—let us use this as a test case of that influence. Let him prove it. The House is in no doubt 253 that this is an important national asset. The threat is real, immediate and serious and we want something done about it.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells)
May I congratulate the right hon. Member for Cities of London and Westminster (Mr. Brooke) on bringing this important matter to the House once again? Let me say at the outset that I have not heard a single word with which I disagree.
The point made by the right hon. Member for Wells (Mr. Heathcoat-Amory) is very important. I would like to think that the decision is not motivated by malice or jealousy on the Germans' part—I would hate to think that that is the real reason. I suspect that it has something to do with a matter that has not been raised this morning—the belief among Members of the European Parliament that this sounds like a good thing.
MEPs may believe that it would be better for the artists to benefit from the resale of their work, rather than a dealer. I can imagine colleagues from all political persuasions trooping into the European Parliament, thinking that their proposals will support young artists who will receive the benefits from their work in the future. In fact, they could not be more wrong.
I declare an interest—I was an art student. I was one of the rebels in the 1960s at Hornsey—the most famous art college in the world at that time. We destroyed that reputation pretty effectively. However, it was at that time that I began to understand that the network of dealers and the way in which the art trade works in London is vital in encouraging the undergrowth of young artists, creative talent and experts which later grows into great artists and great industries.
§ Mr. Ian Taylor
I am sorry to intervene on the Minister, but he mentioned the European Parliament. On 10 December 1996, the rapporteur of a Committee reporting to the European Paliament said:It is important that the harmonisation does not lead to the decline of the art market within the European Union and its displacement to the United States or elsewhere.There is some common sense evident in that opinion—I wonder how much further forward it has been taken.
§ Dr. Howells
I am grateful to the hon. Gentleman for reminding me of that, because I do not think that any progress has been made. That is the problem. I suspect that the gut reaction of many MEPs has been that the issue is a small one among many and that they may as well go along with the Commission.
The hon. Member for Esher and Walton, my predecessor in this job—in fact, he was my predecessor but one, as I came in after a little earthquake in July—made an important point. The Commission contends that harmonisation of the artists' resale right is a single market measure, but article 100A is the appropriate legal basis. The Commission rejects suggestions that the measure is a fiscal or social one, meriting a change in the legal base. In all honesty, I see no possibility of persuading the Commission to change the legal base.
254 Many right hon. and hon. Members have raised the possibility of our getting allies to fight this cause, but we have sought in vain for allies, as the previous Government did. We would have to get all the other member states to agree, as unanimity would be required in the Council. Article 173 provides scope for challenge, but only in relation to acts that are already adopted. We have significant doubts about whether the Commission has properly justified the proposal as an article 100A measure. Its failure to produce an impact report only compounds our doubts.
§ Sir Michael Spicer
What is the Government's position? A little confusion seems to have arisen in the House of Lords. On 28 January, Lord McIntosh gave a firm assurance that there would be no increase in the rate of VAT on art. I am told that Baroness Jay is now running around saying that that assurance was not a firm one and back-tracking on it.
§ Dr. Howells
I have not heard what Baroness Jay has said. We are implacably opposed to an increase in VAT and we will fight it however we can. I was very grateful to my long-term friend, the right hon. Member for Haltemprice and Howden (Mr. Davis), when he brought up the use of the Luxembourg arrangement—I have heard it called an arrangement, an agreement and a compromise—which I will consider seriously, because it is a central issue. The right hon. Member for Wells said that it was worth making a stand, and I agree entirely.
§ Mr. David Davis
I have every sympathy with my friend the Minister. Let me give him what I hope will be helpful advice, because I know what will happen: his officials and those at the Foreign Office will say that a Luxembourg compromise is not a good idea as it rocks the boat too much. That is what they always say. On at least one occasion, and I think on two, I have witnessed France invoking a Luxembourg compromise, claiming a vital national interest, most recently about a shipping industry issue, which was no bigger than this issue and was certainly not unique to France. That compromise was accepted by Germany and the rest of the Council. I have never heard of a better case than ours for a Luxembourg compromise.
§ Dr. Howells
I am grateful for that advice, and I undertake to consider it seriously and try to argue my corner.
Little has been said with which I disagree. My hon. Friend the Member for Linlithgow (Mr. Dalyell) raised an important issue that is not widely understood: the centrality of the trade. The trade is enormously important and tells us something about the way in which wealth is generated today. We have hundreds of debates on the coal and steel industries and on all sorts of manufacturing sectors, but we probably have only one great cluster in this country that is world class: the City.
The City attracts industries—some of them, including the art trade, have been around for a long time—that are integral to it. It is a way of life that generates wealth and creativity. The business of intellectual property rights, encouraging and rewarding creativity, makes a reality of the rhetoric, in which the Government and the previous Government have indulged constantly, of adding value to 255 work. If we are to add value in a real sense by encouraging the undergrowth of young talent, we will have to get this right.
Perhaps the right hon. Member for Wells was correct in his analysis of why the measure was being pushed through under the German presidency. I know that the Austrians were keen to go ahead with it but could not find the time. I am amazed that Commissioner Monti sees fit not to publish his report. It will be months late. This is important to the British economy and, as the right hon. Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan) said, to the European economy as a whole, but the Commission does not understand that importance. It is perhaps not properly understood that the art market is one of the drivers of the modern economy.
It seems a paradox that dealing in fine art, much of it old, should be so controversial. If we cannot encourage our young people to become artists, writers and designers, melding science and creativity, as some of our most brilliant companies do, we will not survive as a first-rate exporting nation. What we are discussing is crucial to that.
§ Mr. Clifton-Brown
Will the Minister comment on what the hon. Member for Linlithgow (Mr. Dalyell) said about fraud in the art market, and in particular the haemorrhaging of VAT when works of art are illegally exported out of the European Union?
§ Dr. Howells
It is interesting that the music industry has decided to employ its own police and investigators to track down piracy across the globe. Some romance attaches to computer piracy, but it is thieving—it is stealing other people's creativity and invention—and there is no doubt that the same is true in the art world.
It has been said that the industry could be driven underground. That would be the worst outcome. We cannot afford to do that. It is important that beautiful paintings, ceramics and other objects can be seen by the public and that we do not have a sub-culture of gangsterism, which could very well arise from the measure. I give the House an undertaking to continue the good work that was done by the previous Government in trying by all means to prevent that.
§ Dr. Howells
I certainly want us to present coherently the arguments that right hon. and hon. Members have made today, and the argument that we will put to the Internal Market Council on 25 February. As we speak, the matter is being discussed by the Committee of Permanent Representatives; it is that urgent. I hope that the messages that have come to me this morning will have some impact on the deliberations in Brussels, and I once again thank the right hon. Member for Cities of London and Westminster for bringing this matter to the attention of the House.