HC Deb 05 July 1999 vol 334 cc661-72

Motion made, and Question proposed, pursuant to Standing Order No.52 (1) (b), That provision may be made in the Finance Bill amending section 21 of the Value Added Tax Act 1994.—[Dawn Primarolo.]

4.54 pm
Mr. Nick St. Aubyn (Guildford)

It is unusual for the House to discuss so many Ways and Means motions. That says a lot about the Treasury's lack of organisation. In the case of this particular motion, it has been known for a long time that certain provisions would have to be made in respect of the art market if the Government failed in their attempt to negotiate a better deal with our European partners. The fact that the motion has been tabled now raises the question of why it was not tabled earlier in the Bill's passage, so that we could have had a proper and detailed debate in Committee on the terms of the new clause that the motion is intended to support.

Mr. Fabricant

Does my hon. Friend agree that there is a real difficulty under the terms of the Ways and Means motion in calculating the additional revenues that will accrue to the Government? Does he also agree that, far from raising funds, the measure would diminish the funds raised by the state by causing a deterioration of the art market in the United Kingdom, in which case, one has to ask why a Ways and Means motion has been tabled?

Mr. St. Aubyn

I am grateful to my hon. Friend for bringing me to my next point, which is to question whether a Ways and Means motion is required. It is known that, when VAT at 2.5 per cent. was introduced on works of art, the volume of international sales conducted in London fell by 40 per cent. If that volume were to fall by a further 40 per cent. when the duty doubles to 5 per cent., which is the effect of the measure that we shall debate later this evening, the amount of revenue raised would go down, not up. Indeed, it has been intimated by those who know a great deal about that market that the level of sales will collapse to almost nothing, so there will be a serious shortfall in the amount that the Government expect to raise. Therefore, a pertinent question for the Paymaster General is, will she confirm how much money is being raised now from the current provision, and how much more or less is expected to be raised once the new provision has been implemented?

I raised the issue of the future of the art market and the tax threat with the Prime Minister in the House a few months ago. I was told that his Government would use all the means at their disposal to ensure the right outcome. I was given to understand that the Government were prepared to use the Luxembourg compromise to force our partners in Europe to think more clearly about an issue wherein they have nothing to gain and we have everything to lose. Why have the Government failed to allow the House a debate on that subject until now? Why have they not been prepared to invoke the Luxembourg compromise in this respect?

In the papers the other day, we read the spin about the Government having saved the art market from a new tax: we were told that the Government's negotiations had averted a tax called droit de suite, which would certainly have been another nail in the coffin of international art sales in London. Why did the Government claim to have saved the art market from a new tax only a few days before introducing a measure to double an existing tax on the art market in this country?

We need to know why there are spurious definitions in the new clause, and what effect any relaxation of those definitions would have on the revenue to be collected under the Ways and Means measure. Why are limited editions acceptable, provided there are no more than eight—

Mr. Deputy Speaker

Order. The hon. Gentleman is now straying into the territory of the new clause. If, when we come to debate the new clause, he is fortunate enough to catch my eye, he might be able to explore such points at that time, but I would suggest that he does not do so now.

Mr. Fabricant

On a point of order, Mr. Deputy Speaker. I understand from my hon. Friend's arguments and the views expressed by others that the art market is to be diminished, so tax revenue will be reduced. Therefore, is it in order for us to debate a Ways and Means motion, which is primarily used to increase revenues?

Mr. Deputy Speaker

There is nothing out of order about a Ways and Means motion in such circumstances. However, hon. Members will help the Chair if they try to maintain a strict distinction between the debate on the Ways and Means motion and the debate that they will have later on the new clause in the Bill to which it refers.

Mr. St. Aubyn

I am grateful to you, Mr. Deputy Speaker. However, I understood that during a debate on a Ways and Means resolution, we could ask Treasury Ministers exactly what sums they expect to raise. I ask them what is their estimate of the revenue to be raised in respect of limited editions under the various categories listed. Have they given any thought to how much revenue they might lose if the definitions were rather more relaxed? They seem absurdly tight at the moment.

Of all the definitions and restrictions, perhaps the most significant is that which relates to works of art imported into the EU or the UK and then exported outside the EU within 12 months. What is the impact of that provision on the revenue to be raised? What would be the impact if that period were extended to 24 or 36 months? Surely works of art of the kind that we are considering in this debate are typically held by collectors for long periods.

If the intention of the measure is to exempt certain categories to help the international art market in London, surely it would be reasonable for the exemption to last for a period longer than 12 months that would take into account the very long time that it sometimes takes to negotiate the sale of a work of art. Such works of art could then still come through London; otherwise, sales will be lost to centres outside the European Union, such as Geneva and New York.

The estimate that I gave the Prime Minister, with which he agreed, was that 5,000 jobs in our economy—mostly in London, but throughout the UK—are at risk because of this measure. Why, at this late stage, are the Government trying to spring on the House a proposal that will probably cost this country 5,000 jobs without giving us a proper chance to consider it and without sticking to the assurances that were given in the House only a few months ago?

Mr. Fabricant

When the Prime Minister revealingly agreed with my hon. Friend that there could be a loss of 5,000 jobs in the industry, did he give an estimate of the money that will be lost to the UK in trade and revenue, which is relevant to the Ways and Means resolution? If he did not, will my hon. Friend do so?

Mr. St. Aubyn

That is a matter best left to the experts. I have seen estimates, but I have learned during the proceedings on the Finance Bill that it is safer for us to ask the Government for their officials' professional estimates than to come up with our own. My hon. Friend asks a pertinent question, and I expect the Paymaster General to have the answer. However, there can be no doubt that a loss of 5,000 jobs is very serious for our economy, particularly as some of those jobs are very well paid and extend beyond the art market to the tourist industry. Many people who come to London to buy international works of art also visit places of historic interest, stay in London hotels and fructify the city's economy. All that will be jeopardised by the proposal.

Mr. Geoffrey Clifton-Brown (Cotswold)

I listened with care to the answer that the Prime Minister gave my hon. Friend during Prime Minister's questions, and the right hon. Gentleman gave the House a clear impression that he would use all his personal authority to prevent this increase in VAT. Does not my hon. Friend think that the Prime Minister's authority in negotiating in Europe has been severely dented by the necessity to bring this Ways and Means resolution before the House?

Mr. St. Aubyn

I am grateful to my hon. Friend. We have heard time and again how the Government, by engaging in what they regard as a more positive way with our European partners, would somehow deliver great concessions and achieve what we were unable to achieve when we were in government. Surely, this is a test case for that so-called new approach to dealing with the European Union, and the tabling of this Ways and Means resolution is an admission by the Government that their policy towards Europe has failed. No one in the European Union will gain from this increase in taxation, and our market will lose. Everyone agrees with that.

Mr. Desmond Swayne (New Forest, West)

Has it occurred to my hon. Friend that it is of little consequence to the Treasury should this largely transatlantic business be damaged and disappear on the ground that that will result in a level of convergence with the European continent that would not otherwise be achieved, which is the object of the Government's policy?

Mr. St. Aubyn

I know that I should not be tempted off the issue, but there can be no doubt that the concerns expressed on the Opposition Benches are very much about an important, thriving London market.

When I raised the matter with the Prime Minister, his Back Benchers—it is recorded in Hansard—thought it a laughing matter. They thought that the loss of jobs was a matter of hilarity, much to the Prime Minister's embarrassment. Indeed, Government Back Benchers are laughing at the moment. It is much to the Prime Minister's embarrassment again that this resolution should be before us. What will be the cost to our economy of the loss of those 5,000 jobs? When will the Prime Minister come to the House to explain why he was not prepared, as he indicated only a few months ago he would be, to invoke the Luxembourg compromise in order to protect a vital national interest?

5.6 pm

Mr. John Townend (East Yorkshire)

Will the Paymaster General confirm that it should always be a principle of Ways and Means resolutions that tax increases are to increase revenue? In the resolution before us, tax is being doubled. Does she agree, however, that there is no possibility of the revenue doubling? I suggest to her that the proposals could, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said, reduce revenue. Will she give a firm estimate of what proportion of the art market she thinks will leave this country for New York or Switzerland? Will she also give an estimate of the cost of the resolution not only in loss of jobs, but in corporation tax on profits of a very much reduced art business?

Does this not show that European tax harmonisation is not a good thing and will very often hit individual countries? If the Conservative party is proved right and the art market substantially contracts, causing an important loss of jobs, will this not be a very good example of how this House of Commons will not be in a position to take remedial action to restore the position and to bring back the art market? London, as an international art centre, might be destroyed for ever. If this is being at the centre of Europe, it is a disaster for Britain.

5.8 pm

Mr. Peter Brooke (Cities of London and Westminster)

I declare an unremunerated interest as president of the British Art Market Federation, which derives from my presidency of the British Antique Dealers Association—which I declare in the Register of Members' Interests, along with its agreeable but uncovenanted excellent Christmas present, on which I declare tax.

Between 1985 and 1987, when I was Paymaster General, I was responsible for answering for Customs and Excise in this House and understudying my noble Friend Lord Lawson, as he now is, in ECOFIN, the latter of which I continued to do until 1989. Having wrestled with exactly the same issues that are in front of us, I have sympathy with the Treasury. I remember the difficulty that they caused us then.

The difficulty, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said—I think that it is familiar to everybody who is participating in this debate—is that the introduction of this tax on works of art entering the European Union will result in a significant amount of trade not ending up in London. It will be sold in New York or Geneva instead—indeed, in due course perhaps, in Tokyo as well.

In 1994, when the legislation which we are revising came in, a reasonable question was how we were obliged to take it through if EU tax changes had to be conducted unanimously. The answer was that the Commission had threatened to take us to court under different legislation, on the ground that a nil rate of VAT represented a potential distortion of trade. I had a leper's squint at that issue in my capacity as the then Secretary of State for National Heritage, as, prior to the creation of the British Art Market Federation, which was stimulated by the previous Government, I used regularly to meet representatives of the art market trade, although VAT remained a matter for Treasury Ministers. My right hon. Friends at the Treasury made it clear that they would give way on VAT, on that subject, only provided that the art trade agreed. However, both sides realised that there was a genuine possibility that the British Government would lose in the European Court against the potential threat. Had they done so, they would have found themselves with a 17.5 per cent. tax rate.

I realise the difficulty with which the present Government have had to wrestle. I am disappointed in the quality and, indeed, the timing of publication, of the European Commission report examining the effects of VAT on the art market. I hope that the Paymaster General will say a word or two about that when she replies. I realise that the Government had to concede. However, I am grateful for the decision contained in the new clause, to which my hon. Friend the Member for Guildford did not refer—probably quite properly, given the rules of order: that there will be a poultice and a palliative in that VAT on works of art created after 1973 will now be taxed at 5 per cent. rather than at 17.5 per cent. I understand that the money resolution is needed to introduce the relevant new clause.

You would rule me out of order, Mr. Deputy Speaker, if I were to dilate at any length on the subject of droit de suite. However, it did come up in the speech of my hon. Friend the Member for Guildford. I congratulate the Government on the robust manner in which they are fighting this issue at present, but I should be grateful if the Paymaster General will repeat that the Government's robustness will continue—although I realise that we are discussing a Department of Trade and Industry matter. It is no good merely to delay the matter; we must win. To lower the temperature of the debate, I point out to my hon. Friend the Member for Guildford that the 5,000 jobs relate to droit de suite as well as to VAT; they are not merely a VAT casualty.

5.12 pm
Mr. Andrew Tyrie (Chichester)

I agree with everything that was said by my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke). I am relatively new to the House, but I am surprised by all these Ways and Means motions on the Order Paper. I do not understand why they are there. Will the Paymaster General give me the precedent for producing an Order Paper laden with such motions at the Report stage of the Bill?

I shall confine myself to the revenue aspects of the matter. Everyone agrees that the increase in VAT will be damaging to the UK art market—that is not in dispute. We do not need to look into the crystal ball; we can read the book. The increase from 0 to 2.5 per cent. had a deleterious effect on the existing art market. Labour Members seem to find that a matter for levity—as they do whenever we debate the subject; I find that deeply regrettable. In the light of the imposition of an increase in VAT from 2.5 to 5 per cent., how much will revenues fall? We are debating a Ways and Means motion. What estimate have the Government made of the fall in their revenues that is likely to result from that imposition? If there is no fall, how much will the increase be? My guess is that it will be extremely small.

I reinforce the point made by my right hon. Friend the Member for Cities of London and Westminster as to the European Commission's report. We were promised a thorough study of the matter, but we have not received one. If the report has been published, it must have come out quietly, because I have not seen it. If it has been published, what does it say and what is the Government's reaction? Is there any succour in it for the UK art market?

Finally, did the Government argue forcefully for an extension of the derogation, or did they capitulate? Did the Government seek to find any allies for the approach that they took?

5.15 pm
Mr. Clifton-Brown

I am glad to catch your eye in this debate, Mr. Deputy Speaker. This is the first chance that the House has had to address this issue since we had the news that the Government had been obliged to concede on the increase in VAT from 2.5 to 5 per cent. on certain works of art.

The way in which the Government have introduced the Ways and Means resolution is a disgrace, for two reasons. First, the Government must be in a certain amount of chaos or they would not have had to produce so many Ways and Means resolutions tonight. Why on earth had they not thought of all this during the Bill's many weeks in Committee? The Government should have been able to think about some of these matters. The subject of the resolution that we are now debating may have caught them unawares, but they should have been able to set many of the others before the House earlier.

Secondly, it is an utter disgrace that, only a few weeks ago, the Government were telling us that they had saved the art industry from the need to introduce this Ways and Means resolution. That was typical spin by the Government. Time and again, when something dreadful is about to occur, they say, "Do not worry; we have prevented it"—and at the end of the day, when everyone has taken their eyes off the ball, lo and behold: they come to the House with a Ways and Means resolution. You would rule me out of order if I went into any more detail, Mr. Deputy Speaker, but it bodes very ill for a much more serious matter—the withholding tax.

I cannot understand why the Luxembourg compromise was not invoked, given that the harmonisation of VAT across Europe is so much against the interests of the whole European Community, not just of this country. If it had been invoked, the Ways and Means resolution would not have been before the House tonight. It is essential that, when the Paymaster General replies, she tells us in some detail what negotiations took place with the Commission, and through the Council, that caused the resolution to be before us tonight.

I have some questions for the Paymaster General; I should be grateful if she would answer them. The very helpful notes on clauses tell us that this measure applies not only to works of art—to which we have confined our debate this evening—but to antiques and collectors' pieces. It would be useful for the House and the trade to Know—obviously, the Government would not introduce the resolution if they had not made the calculations—how much extra tax the Paymaster General expects the increase to net the Government, first from art and, secondly, from antiques and collectors' pieces. It would be interesting to know what projections the United Kingdom Government have done on this matter—whether they really think that they will net an increase in VAT as a result of passing the Ways and Means resolution. Like my hon. Friends, I have a strong suspicion that there will be a net loss of VAT, but let us hear the Government's predictions.

My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) mentioned the amendment to section 21 of the Value Added Tax Act 1994 to decrease the rate of VAT for those works of art created after 1 April 1973 from 17.5 to 5 per cent. It would be interesting to know how much VAT that will lose the Government. What figures have they calculated in that respect?

It has been calculated that the changes will lose the UK 5,000 jobs. In introducing a Ways and Means resolution to the House, the Government should be able to tell us—it would help the trade—how many jobs are likely to be lost as a direct result of this measure and how many are likely to be lost as a result of the combination of this measure and the introduction of droit de suite.

It would be useful to know how many jobs the Government reckon will be exported from the European Community; after all, it is the European Community that is forcing us to introduce the measure. Are all those jobs to be lost to the UK and the European Union, or will some of them be redistributed around the European Union? Will there be an increase in the art market elsewhere in the European Union? If that were the case, it would make some sense for the Commission to insist that the UK introduced the measure. If none of those jobs is to be reclaimed in the European Union, it seems daft.

Mr. John Bercow (Buckingham)

Will my hon. Friend give way?

Mr. Christopher Leslie (Shipley)

Will the hon. Gentleman give way?

Mr. Clifton-Brown

I shall give way to my hon. Friend and then to the hon. Gentleman.

Mr. Bercow

Is my hon. Friend aware, in the context of the motion, that the habitual refrain of Ministers is that they eschew the cause of tax harmonisation within the European Union despite appearances to the contrary? Does my hon. Friend agree that it is of the utmost importance that, in responding to the debate, the Paymaster General should explain to us how she distinguishes the words "to harmonise" and "to co-ordinate", given that page 898 of the "New Shorter Oxford English Dictionary" defines "to co-ordinate" as to place or class in the same order, rank or division"? What is the difference?

Mr. Clifton-Brown

My hon. Friend raises an interesting point. However, I am sure that, if I strayed too far down that path, you would rule me out of order, Mr. Deputy Speaker. We on the Opposition Benches believe in tax competition, not tax harmonisation. On this matter, the Government are entirely inconsistent. When I raised at some length the question of tobacco taxes, the Government were all for having a tobacco tax at a different rate from that of the rest of the EU and losing a huge amount of revenue thereby. However, when it comes to the issue that is before us, which will result in the loss of many jobs, the Government seem to want harmonisation. I do not understand why the Government cannot be more consistent on this matter. If they were, at least everyone would know where he stood.

Mr. Leslie

Will the hon. Gentleman explain why, in 1994, the Conservative Government gave a legal undertaking to increase the value added tax on imported works of art to 5 per cent?

Mr. Clifton-Brown

If the hon. Gentleman had been present—I am not sure whether he was—to listen to my right hon. Friend the Member for Cities of London and Westminster, he would have heard that, if we did not agree to an increase from 2.5 to 5 per cent., albeit that we had a derogation for 20 years, we would be subject to a threat to take us to the European Court, and the European Union could have imposed a 17.5 per cent. rate of tax. That would have been far more damaging.

I am saying that the Government are dealing with the circumstances as they arise, and they are that the derogation is to end in June or July. The Government have to deal with that. It is their stewardship that we are under, whether we like it or not. They appear to be intent on decimating our art market because it seems that they cannot put an appropriate argument to our European partners that the increase in tax is disastrous for us and for them as well. It is daft. If the increase would benefit the EU as a whole, there would be some sense in it, but that is plainly not the position. As my right hon. Friend the Member for Cities of London and Westminster has said, business will be driven away. It will go not to Paris, Berlin or anywhere else in the EU, but outside it. It will go, for example, to Geneva, New York or Tokyo. The EU will lose jobs, balances of payments will be adversely affected and tax revenues will be lost.

The Prime Minister put his personal authority on the line when he said that he would do something about this tax increase. He said, in effect, that he would convince our European partners that it did not make sense. At the end of the day, he failed in that respect. If that has happened, how many more times will he fail in Europe, and how many more times will the United Kingdom be disadvantaged thereby?

5.25 pm
Mr. David Heathcoat-Amory (Wells)

Like a number of my right hon. and hon. Friends, I do not think that the motion should be nodded through, notwithstanding that we can debate the substance of new clause 14 at a later stage this evening. We need to know from the Minister now what the anticipated yield will be from doubling valued added tax on imported art.

We are talking about a most important industry. Labour Ministers seem somewhat dismissive of the art industry as a whole and they should be reminded that it is not based only in London. There is an extensive network of dealers and galleries throughout the United Kingdom and there are many ancillary industries such as framing, conservation, insurance and shipping, all of which feed off the international market, which is based in London.

The motion would double the rate of VAT on imports. We know that it derives from a directive passed in 1995, from which the United Kingdom had a limited derogation. As so often happens with the European Union, the boomerangs return. The Government may remind us this evening that they have postponed the separate threat represented by droit de suite, the levy on the resale of contemporary art. It would be useful to know on what terms that has been postponed, and whether it may turn out to be a boomerang as well.

In the 1995 agreement, it was agreed that, by 1999, when the British derogation ended, there should have been a study into whether VAT on imported art was damaging the European art market. That report has been produced. It was late—it should have been produced last year, but it was made available only a few months ago. It is interesting that, although the report was commissioned by the European Commission, and to that extent is not wholly impartial, it nevertheless paints a good picture of the damage already caused by VAT, even at present levels.

As regards the impact on the United Kingdom, the report states: Between 1994 and 1997"— during that period, VAT at 2.5 per cent. was imposed— the United Kingdom went from being a net importer … to being a net exporter of art, so VAT even at that lower rate clearly caused damage. The report also records—this is dangerous—the views of the New York dealers, whom it states are all very excited at the prospect of import VAT rates being increased in the UK (which they see as their main competitor). The report concludes that high value buyers and sellers are increasingly choosing New York over London as their preferred venue because of the 2.5 per cent. differential. That happens even at the present VAT level, which we are about to double.

Mr. Geraint Davies (Croydon, Central)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

Will the hon. Gentleman forgive me? I want to give the Minister an opportunity to respond.

The Commission's own study shows conclusively that damage has been caused, so it was—I choose my words carefully—mendacious of the Commission to assert in its press release that the report had provided no evidence of damage to the European art market. That was flatly untrue.

The Minister will probably remind us in a moment that the Commission has agreed to reduce the 17.5 per cent. VAT rate that at present applies to contemporary art painted or created since 1973. That is a welcome development, but it does not offset the damage that will be caused by the doubling of the 2.5 per cent. rate.

The Commission, which after all has a duty to promote the economic interests of Europe as a whole, even if it is dismissive of the UK's interest, should not have ignored the evidence of its own study, which showed damage not simply to the UK, but to the entire European art market. The only people who will be pleased by the motion are competitors outside Europe, in Switzerland, the United States, Japan and elsewhere. It will simply transfer business—

Mr. Leslie

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall give way very quickly to the hon. Member for Shipley (Mr. Leslie); I apologise to the hon. Member for Croydon, Central (Mr. Davies).

Mr. Leslie

I am grateful to the right hon. Gentleman. Can he confirm whether, when he has Paymaster General in 1994, he was in any way involved in the discussions or negotiations about the move from 2.5 to 5 per cent?

Mr. Heathcoat-Amory

I was not Paymaster General in 1994, so I had nothing to do with the negotiations.

I conclude with a request to the Paymaster General. If the motion goes through—it looks as though it will—and if the Commission's own study turns out to be correct and damage will be caused, will she ask it to produce a further study in due course so that it can return to this matter and reduce the minimum mandatory rate?

Mr. Clifton-Brown

Does my right hon. Friend agree that the people responsible for the measure are officials sitting in highly paid jobs in the Commission who do not care about job losses even though 17.5 million people are already unemployed in the European Union?

Mr. Heathcoat-Amory

My hon. Friend is entirely correct. The measure is a bureaucrats' charter and the people in the Commission who introduced it will not lose their jobs. Our constituents who rely on the vitality and success of the trade will lose their jobs—not the people in the big auction houses, which will simply transfer their auctions to New York. The little people—the porters, the packers, the office staff, the experts, the framers—will lose their jobs. They have been abandoned by the Labour party, but they have not been abandoned by us, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) says.

I understand the constraints under which the Paymaster General has been negotiating, but, even at this late date, I ask her at least to ask the Commission to study this matter and return with other proposals if the damage, as reported, occurs.

Mr. Deputy Speaker

I call Mr. Fabricant.

Mr. Fabricant


Mr. Deputy Speaker

Order. I apologise to the House; I was distracted for a moment. Has the right hon. Member for Wells (Mr. Heathcoat-Amory) given way or has he concluded his remarks?

Mr. Heathcoat-Amory

I have concluded.

Mr. Deputy Speaker

In that case, I should call the Paymaster General to reply to the debate in the remaining time.

5.31 pm
Dawn Primarolo

I shall try to deal with all the points that have been raised within the short time that remains. If I cannot, I shall certainly deal with them in the later debate.

I remind the House of the context of this matter. The previous Government—I understand that the right hon. Member for Wells (Mr. Heathcoat-Amory) was Paymaster General from 1994 to 1996—committed us to an absolute legal obligation to raise VAT on works of art from 2.5 to 5 per cent. The then Government asked the Commission to undertake an independent study, but they unfortunately did not have that written into a directive. The agreement was political and therefore not enforceable in law.

The right hon. Member for Cities of London and Westminster (Mr. Brooke), who is very well informed and follows these issues closely, referred to the delayed report. He is quite right: the independent report should have been available at the end of December, but it was not available until March. The Commission made its response as late as 28 April and the Government's view is that it ignored the recommendations. In our opinion, the Commission's recommendations did not properly recognise elements of the independent report, which we then pursued vigorously with the Commission and other member states.

The hon. Member for Chichester (Mr. Tyrie) asked about the Commission's report. I can tell him that it and an explanatory memorandum were put before the House along with the Government's view. Although the report was lodged with us, the Commission unfortunately did not make it generally available and, under the agreement undertaken by the previous Government, we could not require it to do so. However, we at least obtained a copy for ourselves and were able to scrutinise the details.

The Government were faced with the Commission's insistence on the implementation of the absolute legal requirement. As hon. Members know, the consequence for the Government of not complying with our legal obligations would have been infraction proceedings and things could have been considerably worse. None the less, we continued to pursue the Commission to seek either an extension of our derogation or the setting of 2.5 per cent. as the rate for the rest of Europe. Only one other EU country—Denmark—applies the 5 per cent. levy, and the others apply higher rates.

The Government faced an absolute legal agreement and had no room for manoeuvre because the independent report had not been written into the directive. The Commission refused to move, and other member states did not agree to reopen the matter. At present, income to the Government is around £10 million, and the increase in VAT to 5 per cent. on goods currently taxed at 2.5 per cent. will yield around a further £10 million in a full year. The offset resulting from widening the scope of the new 5 per cent. rate to include imported works of art previously taxed at 17.5 per cent. will, however, leave the overall package effectively revenue neutral.

Mr. Tyrie

Will the Minister give way?

Dawn Primarolo

Forgive me, but I have been left little time to reply to the debate. I shall be happy to return to the point in later debates.

The Government have continued to work closely with the art market, recognising its valuable contribution to a global art market centred on New York and London. The European Union should see London as a European centre of excellence, but we have not been able to win that argument at this stage. In a press release, the British Art Market Federation welcomed the Government's decision to provide for the reduction on imports of contemporary art, saying that that decision and the Government's equally robust opposition to the Artists' Resale Rights Directive, —not relevant to this debate, and not part of my responsibilities— will we believe, enable us to maintain the UK's competitive position in the international art market. The federation recognises what we have done, and recognises that we were bound by legal obligations because of the previous Government's commitments. It has congratulated the Government on vigorously pursuing the best interests of the art market. Despite what some Opposition Members say, the Government are committed to ensuring that the British art market gets a fair deal.

5.39 pm
Mr. Leigh

I am sorry that the Minister was unable to give way during the debate. Clearly, she had time to do so. What can she say about new subsection 6(a), which sets out items accepted for definition—

Mr. Deputy Speaker

Order. I am afraid that the Minister will not have an opportunity to answer that question.

It being three quarters of an hour after the commencement of proceedings on the motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 52(1)(b) (Money resolutions and Ways and Means resolutions in connection with Bills).

Question agreed to.


That provision may be made in the Finance Bill amending section 21 of the Value Added Tax Act 1994.