HC Deb 05 July 1999 vol 334 cc737-45

'.—(1) In subsection (4) of section 21 of the Value Added Tax Act 1994 (which treats as reduced for VAT purposes the value of goods falling within subsection (5) of that section and imported from outside the EC)—

  1. (a) at the beginning there shall be inserted "Subject to subsection (6D) below,";
  2. (b) for "14.29 per cent." there shall be substituted "28.58 per cent."

(2) For subsections (5) and (6) of that section there shall be substituted the following subsections—

"(5) The goods that fall within this subsection are—

  1. (a) any work of art;
  2. (b) any antique, not falling within paragraph (a) above or (c) below, that is more than one hundred years old;
  3. (c) any collection or collector's piece that is of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological, ethnographic, numismatic or philatelic interest.

(6) In this section 'work of art' means, subject to subsections (6A) and (6B) below—

  1. (a) any mounted or unmounted painting, drawing, collage, decorative plaque or similar picture that was executed by hand;
  2. (b) any original engraving, lithograph or other print which—
    1. (i) was produced from one or more plates executed by hand by an individual who executed them without using any mechanical or photomechanical process; and
    2. (ii) either is the only one produced from the plate or plates or is comprised in a limited edition;
  3. (c) any original sculpture or statuary, in any material;
  4. (d) any sculpture cast which—
    1. (i) was produced by or under the supervision of the individual who made the mould or became entitled to it by succession on the death of that individual; and
    2. (ii) either is the only cast produced from the mould or is comprised in a limited edition;
  5. (e) any tapestry or other hanging which—
    1. (i) was made by hand from an original design; and
    2. (ii) either is the only one made from the design or is comprised in a limited edition;
  6. (f) any ceramic executed by an individual and signed by him;
  7. (g) any enamel on copper which—
    1. (i) was executed by hand;
    2. (ii) is signed either by the person who executed it or by someone on behalf of the studio where it was executed;
    3. (iii) either is the only one made from the design in question or is comprised in a limited edition; and
    4. (iv) is not comprised in an article of jewellery or an article of a kind produced by goldsmiths or silversmiths;
  8. (h) any mounted or unmounted photograph which— 738
    1. (i) was printed by or under the supervision of the photographer;
    2. (ii) is signed by him; and
    3. (iii) either is the only print made from the exposure in question or is comprised in a limited edition;

(6A) The following do not fall within subsection (5) above by virtue of subsection (6)(a) above, that is to say—

  1. (a) any technical drawing, map or plan;
  2. (b) any picture comprised in a manufactured article that has been hand-decorated; or
  3. (c) anything in the nature of scenery, including a backcloth.

(6B) An item comprised in a limited edition shall be taken to be so comprised for the purposes of subsection (6)(d) to (h) above only if—

  1. (a) in the case of sculpture casts—
    1. (i) the edition is limited so that the number produced from the same mould does not exceed eight; or
    2. (ii) the edition comprises a limited edition of nine or more casts made before 1st January 1989 which the Commissioners have directed should be treated, in the exceptional circumstances of the case, as a limited edition for the purposes of subsection (6)(d) above;
  2. (b) in the case of tapestries and hangings, the edition is limited so that the number produced from the same design does not exceed eight;
  3. (c) in the case of enamels on copper—
    1. (i) the edition is limited so that the number produced from the same design does not exceed eight; and
    2. (ii) each of the enamels in the edition is numbered and is signed as mentioned in subsection (6)(g)(ii) above;
  4. (d) in the case of photographs—
    1. (i) the edition is limited so that the number produced from the same exposure does not exceed thirty; and
    2. (ii) each of the prints in the edition is numbered and is signed as mentioned in subsection (6)(h)(ii) above.

(6C) For the purposes of this section a collector's piece is of philatelic interest if—

  1. (a) it is a postage or revenue stamp, a postmark, a first-day cover or an item of pre-stamped stationery; and
  2. (b) it is franked or (if unfranked) it is not legal tender and is not intended for use as such.

(6D) Subsection (4) above does not apply in the case of any goods imported from outside the member States if—

  1. (a) the whole of the VAT chargeable on their importation falls to be relieved by virtue of an order under section 37(1); or
  2. (b) they were exported from the United Kingdom during the period of twelve months ending with the date of their importation."

(3) This section has effect in relation to goods imported at any time on or after the day on which this Act is passed.'.—[Dawn Primarolo.]

Brought up, and read the First time.

Dawn Primarolo

I beg to move, That the clause be read a Second time.

The new clause enables the United Kingdom to fulfil its legal obligations under the seventh VAT directive, as incorporated in the EC sixth VAT directive. That directive requires member states to apply a minimum rate of VAT of at least 5 per cent. to a wide range of imported works of art, antiques and collectors' pieces. The new clause implements the undertaking given by the previous Government to increase our rate to the minimum level.

Since 1995, the United Kingdom has applied a rate of 2½ per cent. to a limited range of works of art, antiques and collectors' items. Until the UK implemented the seventh directive, those products had been relieved from import VAT. That rate of 2½ per cent. has been available to the UK only under a transitional derogation, which was time-limited to 30 June 1999.

9.45 pm

Despite our inheritance from the previous Government, this Government have decided that, on balance, it would be better all round for our 2½ per cent. rate to be more widely available in the Community. We have fought that case long and hard in Europe, arguing that the interests of both the United Kingdom and the Community generally would be best served by 2½ per cent. being made the minimum rate available to all member states. However, we have also pressed the case for the UK to retain its special rate for a further period in the event of our failing to reach agreement with our European partners.

Mr. Fabricant

Will the Paymaster General give way?

Dawn Primarolo

May I finish what I am saying? After that, I shall be happy to respond to any points that the hon. Gentleman wishes to make.

Either of those proposals would have required both the support of the European Commission and the unanimous agreement of all other member states. Despite our efforts, it became clear that there would be little support for the UK position, and it has therefore not been possible to secure the unanimous agreement that was necessary to bring about the change.

Mr. St. Aubyn

Will the Paymaster General give way?

Dawn Primarolo

I want to finish what I am saying. I shall then be happy to respond to any points that hon. Members make in the debate.

We have throughout worked closely with the art trade. We fully realise the importance of the British art market and its worldwide standing. For those reasons, we propose to ease the effects of the increase in the rate of import VAT by widening the scope of the new 5 per cent. rate to a broader range of art works. That rate will apply to the full range of items that may be entitled to a reduced rate of import VAT under the sixth directive.

Mr. Andrew Tyrie (Chichester)

Will the Paymaster General give way?

Dawn Primarolo

I should be grateful if the hon. Gentleman would let me put the case. I shall, of course, respond to the points that hon. Members make in the debate. We engaged in some discussion about the matter at the outset, and I know that the hon. Gentleman is keen to take part.

Even with the increase, there is still no lower rate of import VAT in Europe on works of art. It is the minimum that the Government need to do to comply with the absolute legal obligation that we inherited from the last Administration. The package offers a much wider coverage of the reduced rate for art imports and should ensure that the UK remains an attractive place for the art trade.

Our proposals have been welcomed by the British art market, which has acknowledged the length to which the Government went to try to undo the damage done by their predecessor. I commend the new clause.

Mr. St. Aubyn

I am grateful to my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) for drawing attention to the last Government's difficulties. Their decision to accept the halfway house that has persisted until now was a compromise that was, in effect, forced upon them. It was always envisaged that the economic impact of a 2.5 per cent. VAT rate would be properly assessed by the European Union, and it was reasonable to suppose four years ago that, when the matter came up for review this year, our partners would understand the effect that the rate has had on the London art market in particular.

The Paymaster General asked us to applaud her efforts. The fact is that the widening of the 5 per cent. band will not affect the major issue, which is where international art sales take place. It is in the sales of Impressionist paintings and old masters that the really attractive big money is being spent. Those are exactly the sort of sales which, in the future, will take place almost exclusively in Geneva, New York and other places outside the European Union. It is the lucrative end of the market that London will lose, and the consequences for London will be severe.

The Paymaster General has failed to tell us in this debate or the previous one how many jobs she expects the market to lose as a result of the measure. There can be no doubt that jobs will be lost. It may not be as many as the 5,000 predicted earlier—let us hope that that is the case—but there will be job losses.

The Paymaster General's comment that the new measure is tax neutral beggars belief. The only sense in which it is tax neutral is that the amount of tax that is raised may be no more than the amount that was raised under the previous system. Any situation in which the tax rate doubles but the amount of tax collected remains the same is, by implication, one in which the volume of transactions has, in effect, halved. Will she confirm—I hope she is listening—that in the key areas, including the old masters, the Impressionists and other parts of the value end of the art market, the implication of her prediction on revenue is that the value of sales in the United Kingdom will halve as a result of the increase in tax?

In Committee, I suggested to the Paymaster General and her advisers that they should look at the exemption for culture under the sixth VAT directive. There is a clear exemption for cultural activity in the European Union—VAT should not apply to cultural activities where those are not to the disadvantage of other member states.

It is widely agreed that, in the case of the art market, any low rate in the UK is not to the disadvantage of other member states because we are in competition not with them, but with Geneva, New York and other centres where there is no tax to pay. Why is it that before we did not impose tax on art sales in this country? It is because, fundamentally, it is not a financial transaction but a cultural exchange. Therefore, under the VAT directive, there is a specific exemption, which could be explored with our other partners. On that basis, a wide exemption could be granted to the market in this country.

Four years ago, we chose not to go down the contentious legal route to protect our art market. We chose to enter a compromise deal—

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. St. Aubyn

I will finish in a moment; I shall let the hon. Gentleman in in a moment.

We chose to enter a compromise deal on the basis that, within four years, the evidence would be clear that the rate was damaging our market and not helping anyone else's. We assumed that our partners in Europe would accede to our request at the end of the period to cut the rate again. Having failed to do so, we should be going down the legalistic route. We should be trying to protect a valuable business in this country. It is the Government's failure to do so, despite their promises in recent months, that is the real disappointment. That is why our questions deserve a proper answer from the Paymaster General.

Mr. John Townend (East Yorkshire)

I do not know whether I heard the Paymaster General correctly, but I got the impression that she said that the 5 per cent. rate was not continuous but for a limited period. If that is so, will she tell us how long that period is and what the rate is likely to increase to?

The Paymaster General surprisingly said that the decision to double the VAT rate was welcomed by the art trade in this country. I find that incomprehensible because the only people who will welcome the VAT increase in London are art dealers in New York and Switzerland.

The terrible situation has shown us one thing. As my hon. Friend the Member for Guildford (Mr. St. Aubyn) said, naturally, we expected from an equitable point of view that our European colleagues, having looked at the effect of the 2.5 per cent. rate, would see reason and allow us to continue at that rate. As has been said many times, it is not a question of harmonisation to remove unfair competition with other countries in Europe. There are only three international markets in the world: London, Geneva and New York. Once the change is made, all that will happen is that the European Union as a whole will lose out in the international art market to America and to Switzerland. Does not that fact demonstrate—to the House and to the British people—that, when our vital national interests are at stake, we cannot depend on Europe?

It does not matter whether the previous Government made a great mistake in agreeing the change or the current Government are making a mistake now. The current Government said, "Things will be different: we are at the heart of Europe. We shall persuade our European partners to see reason." In this case, we have reason on our side, but the Government have failed completely.

Mr. Geraint Davies

Today, we have heard much froth and rubbish from Opposition Members on the issue to which there are two aspects: first, VAT on certain items will be increased from 2.5 to 5 per cent.; secondly, there will be a VAT reduction on other works of art. However, we have not heard much from Opposition Members about the VAT reduction.

Let us get our facts right. Earlier, my hon. Friend the Member for Shipley (Mr. Leslie) asked the shadow Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), whether he was Paymaster General in 1994, when the previous, Conservative Government agreed the VAT increase from 2.5 to 5 per cent.—about which Conservative Members have been whingeing today, but which they agreed—but he said that he was not Paymaster General at that time. [Interruption.] However, all the records—such as old lists of ministerial responsibilities—seem to say that, in September 1994, David Heathcoat-Amory Esq. was the Paymaster General.

Mr. Heathcoat-Amory


Mr. Davies

Obviously the right hon. Gentleman has some sort of memory problem. Perhaps that is why he has a majority of only 528. [HON. MEMBERS: "Give way."] I shall certainly give way, if the right hon. Gentleman would like to correct the record.

Mr. Heathcoat-Amory

I am grateful to the hon. Gentleman for graciously giving way, as he mentioned me. I should like to make it absolutely clear, and beyond doubt, that I had nothing to do with the negotiation of those matters or the decision, all of which were dealt with by my noble Friend Lord Cope. Will the hon. Gentleman accept that assurance?

Mr. Davies

Does that mean that the right hon. Gentleman knew nothing about it, and had no responsibility for it whatsoever? In answer to the question of my hon. Friend the Member for Shipley, the right hon. Gentleman said that, in 1994, he was not Paymaster General—but he was. Could we get that matter clear, for the record? What sort of Cabinet was involved in the decision? Regardless of whether the decision was taken by him, one of his colleagues or someone who has subsequently slipped off the electoral terrain—as I said, the right hon. Gentleman has a majority of only 528—with such talk about positions previously held, one wonders whether he will be in the House for very much longer. The simple fact is that British art will be successful for much longer than he will be.

There will be a marginal tax increase. Although no one welcomes the increase—which was introduced by Conservative Members—to counteract it, the Government are introducing all types of concessions. There will be a massive reduction in the marginal rate of VAT, from 17.5 to 5 per cent., on tapestries, ceramics, enamels and photographs.

More widely, there is a new generation in a thriving antiques industry, which will generate many new jobs. However, all we hear from whingeing Opposition Members—crying crocodile tears, moaning and rolling around on the Opposition Benches—is, "What about the job cuts?" The Government are reviving the industry, while dealing with the legacy of tax constraints that we inherited from the previous Government.

Mr. St. Aubyn

Will the hon. Gentleman give way?

Mr. Davies

Perhaps we can now move on. I would have taken the hon. Gentleman's intervention, but he refused—from absolute embarrassment—to take mine.

Mr. Tyrie

I simply want to ask the Paymaster General a few questions that I was unable to put in an intervention.

First, will the Paymaster General clarify the assumptions behind her forecast of a £10 million revenue increase from the VAT increase from 2.5 to 5 per cent? Will she state categorically whether those assumptions include the sharp fall in business that is likely to occur because of the VAT increase?

Secondly, will the hon. Lady commit herself to the review that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked for? Will the Government go to Brussels and press for another report after a couple of years, which will show the damaging effect that the increase in VAT will have in Britain and across the European market? The market will move out of Europe to New York and Tokyo. Will she commit herself to pushing for a review of this absurd policy after a couple of years?

10 pm

Mr. Christopher Gill (Ludlow)

My hon. Friends the Members for East Yorkshire (Mr. Townend) and for Guildford (Mr. St. Aubyn) have made a good case on behalf of the London art market and shown how the tax will adversely affect it. I have every sympathy with their point of view and the strength of their argument.

The Government are fully signed up to the European Union. Instead of looking at the issue in the narrow confines of the British interest, why has it not been possible for the British Government to persuade the European Union that not increasing the tax is in the interests of the European Union as a whole, not just the London art market? London is part of the broader picture. Why has it not been possible to persuade the powers that be that the change would damage the European Union? The argument should be advanced on a broader plain. We need to explain to our European partners that the opposition is in New York and Geneva. By damaging the London market, all that we are doing is damaging Europe.

Mr. Fabricant

I endeavoured to intervene on the Minister earlier, but she was determined not to let anyone in. When we debated the subject on the earlier narrow Ways and Means motion, she said that we would be quite competitive at 5 per cent., because, apart from Denmark, other countries had a higher rate. The problem is that those countries are not the competitors. The competitors are Basel, Geneva and New York. What is the general sales tax for art works in New York state or Geneva?

Mr. Heathcoat-Amory

We debated the issue earlier today, but there are some questions outstanding, to which my hon. Friends have referred. I have two questions.

It is regrettable that VAT on imports is to be doubled. That will be a heavy and savage blow to the British art market. No one has made a secret of the fact that we are dealing with a pre-existing directive. I am happy to reassure the hon. Member for Croydon, Central (Mr. Davies) again that it had nothing to do with me. The negotiations took place while my predecessor was Paymaster General, but I do not dissociate myself from my noble Friend Lord Cope, who secured an undertaking that the Commission would conduct a study before the derogation ran out. That study was forthcoming and showed that damage had been caused even at the existing levels of VAT on art imports.

The study also mentions that in the 1950s Paris was the biggest art market not just in Europe, but in the world. It has been damaged by a combination of the droit de suite—a levy on the resale of works of art—and the imposition of VAT on art imported into France. That is a matter for the French Government, but the same levels of VAT are to be imposed on the UK market despite the damage that has been shown in the study by the consultants. That conflicts with article 2 of the treaty of Rome, as amended, which says that the European Union should have a number of objectives, the first of which is to promote economic and social progress and a high level of employment. It has been shown by the study that the proposal will cost jobs in the EU, and will undoubtedly do further economic damage. It is my contention that the European Commission is breaking the treaty in persisting with its intention to bring the minimum level of VAT on art imports up to 5 per cent.

My first request, which has been echoed by my hon. Friends, is that the Commission should be asked to conduct a further study after the VAT directive is enacted to ensure that no further damage is done and, if damage is inflicted, that action will be taken. That is a modest request to make of the Government.

My second request concerns the linked matter of droit de suite. Happily, that separate threat has been deferred. However, it has only been postponed, and I would like to know on what terms it has been deferred, whether it will come back, whether further technical work will be undertaken and whether further political consultations are taking place.

The art market needs to know the answers to those questions tonight. I asked them earlier today without success. Perhaps the Minister will take this opportunity to answer those two specific questions.

Dawn Primarolo

We can sum up the approach of the right hon. Member for Wells (Mr. Heathcoat-Amory) as, "It is nothing to do with me. I was just a member of the Government of the time—or, at least, I was voting for them."

The previous Government committed the United Kingdom to an absolute legal obligation to increase VAT on works of art from 2.5 per cent. to 5 per cent. It is true that the previous Government asked the Commission to undertake an independent study of the impact of the imposition of 2.5 per cent. VAT on the art market. However, the study was not made conditional on anything. It was not put in the directive, nor was it said that the derogation should not expire until the study was completed.

The study was completed independently, and arrived late. It showed that there were grounds for continuing to argue the case that the increase from 2.5 per cent. to 5 per cent. should not take place. The Commission ignored that, and made its own recommendations. The Government were faced with an absolute legal obligation to increase the VAT to 5 per cent, which could not be resisted. There was simply no practical choice but to implement the increase. We were faced with the legal obligations signed up to by the previous Government.

Earlier, I referred to the cost to the British art market, how much revenue would be raised by increasing the levy to 5 per cent. and the results of the concession. The British Art Market Federation has said that it believes that the overall package will enable the art market to remain as competitive as it is already. Therefore, the Government's figures of a £10 million rise, as well as the cost of the concession, will result in a revenue-neutral position. [Interruption.] I am not surprised that Conservative Members do not want to listen, because their crocodile tears at this late stage are pathetic. The Government have fought hard, working in partnership with the art market, and we continue to press the case. We made it clear to the Commission that we want to pursue the impact on the art market of increasing VAT.

The British art market is of value to Europe. We should think not about our art market versus the rest of Europe but about sales in the international market. I am happy to give the House the undertaking that the Government will continue to fight for the best interests of the art market. We deeply regret the fact that the previous Government were so foolish as to create an absolute legal obligation with which we now have to comply, but there is no alternative.

The package that we have proposed will enable the art market, so it tells us, to remain competitive and vibrant and attract new trade.

Mr. Townend

The Paymaster General said that the art market has said that the reductions on ceramics and tapestries—which are minor parts of the market compared with painting—will allow it to remain competitive. Who exactly has said that?

Dawn Primarolo

I could send the hon. Gentleman a copy of the British Art Market Federation's press release in response to our proposals. I am sure that he would be delighted to read it and to congratulate the Government on having done our very best—given that we were forced to increase VAT—to put together a package that mitigates the impact and helps the art market. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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