§ 7.42 p.m.
§ Earl Haig rose to ask Her Majesty's Government whether they will consider tax legislation as an incentive to relieve the financial hardship suffered by many living artists at a time of recession and to promote the sales of contemporary art.
The noble Earl said: My Lords, I believe that no Member of your Lordships' House would deny the importance of the artist in our society. In an age of mass production, he has understood his cultural heritage and used his techniques to interpret life in terms of symbols and in terms of feeling and personality. The Russian painter Kandinsky once described content in painting as:
The communication of what is secret by what is secret".
Kandinsky left Russia because artists were being denied the right to express themselves and because only those artists who were willing to interpret politically acceptable themes were provided for. Here, in this country today, although the artist is secure from the point of view of freedom of expression, he is less secure from the material point of view. Artists have a fine record of being ready to sacrifice the material things of life in order to practise their art. Many of them have had the courage and the toughness to continue working in spite of adversity. In this country today, at a time of recession, many of them need every penny for material things, and the chances of survival are slim.
§ I must declare an interest as a practising painter. From the knowledge of my profession, I can help to pinpoint some of the problems that many artists are facing—problems which force them to look for other means of earning a part-time living, as teachers, as art critics, by working in a gallery or museum, or simply by applying for national assistance. Many artists who are allowed to register and to receive supplementary 1349 benefit suffer from a dilemma whenever they receive income from sales, commissions, grants or awards. Are they to declare their receipts and risk prosecution at a later stage or do they simply hide their receipts?
§ Opportunities for part-time employment do not come easily. But when chances do arise to supplement income by other work, things can be difficult under the present taxation system. Many artists cannot claim expenses since they are liable to be written off as hobby painters by the Inspector of Taxes. These expenses are growing fast while the returns on exhibitions are diminishing. The commission in most galleries on sales has now reached the level of at least 40 per cent. This increased gallery commission is due to rising overheads which, in the past 10 years, have risen tenfold. Opportunities to exhibit in galleries are becoming scarcer, and the cost of materials has risen steeply during the past 10 years. For instance, a canvas prepared by Winsor and Newton of modest size, say 24 inches by 36 inches, today costs over £23 excluding VAT, compared to just over £4 in 1972,
§ Framing costs have increased likewise and the price of paints and brushes has risen. So the cost of painting big pictures is prohibitive. The galleries are having to confine their exhibitions to business-making ones so that artists who are relatively unknown, but who should be given opportunities to exhibit, are being cut out. It is only when an artist's work is considered to be an investment that there is a chance of selling and the chance of an exhibition. The owner of the gallery where I exhibit in Edinburgh tells me that, with the exception of one or two exhibitions a year, the gallery makes a substantial loss in putting on exhibitions of contemporary art. This is only offset by the dealing aspect of the business where expensive and lucrative pictures are bought and sold. My dealer tells me that he knows of no other dealer of any repute in the world who makes a serious commitment to the showing of contemporary art who does not also deal from a back room.
§ My purpose is to sound the Government about what proposals they have in mind to regenerate the market for contemporary work and which would foster a demand. At present, the whole machinery is slowing down because the finance needed to drive the machinery has disappeared. Both the public sector side of patronage, through the Arts Council and local authorities, and the private sector need a boost. It is with the sphere of private patronage that this Question is concerned.
§ The public sector funding through the Arts Council, enjoyed by only too few practising artists, should not be reduced. Having served myself for some years on the Arts Council, I know how important and useful its work is. In that sphere, the artist comes under the discretion of committees, whereas in the private sphere, about which I am talking, his work is considered by individual people. Having said this, let us not forget the part which the public sector played at the time of the great American depression when the careers of many budding young painters of the New York school were saved by an enlightened scheme in which murals were painted for public places. Last year, during a less severe recession in America, the private sector market for contemporary work fell 1350 drastically, which shows how vulnerable the artist is to the ebb and flow of money.
§ While on the subject of commissions for public buildings, perhaps I might add that the President of the Royal Academy, Sir Hugh Casson, has particularly urged me to press the merits of a scheme whereby a percentage of the cost of each building should he spent on embellishment, as happens in several other countries. The main responsiblility for carrying out such a scheme would be upon the architects, and it is interesting that it has the support of such a distinguished architect as Sir Hugh.
§ I should like to refer briefly to the need to preserve so far as is humanly possible state support for our schools of art and design, many of which are suffering cutbacks. At a time when there are many new techniques, new materials and new ideas afloat, money is needed to provide adequate teaching staff and adequate resources for students while in the art schools. Business training also is needed to prepare them to face the colder climate prevailing in the outside world.
Last May, our Conservative Party Manifesto contained the following sentence:
We shall examine ways of using the tax system to encourage further growth in private support for the arts and heritage".
My Question tonight urges the Government to encourage a little faster the growth of private patronage for the visual artists. It urges the Government to give some kind of financial boost which will encourage bankers, businessmen, private collectors and industrialists to buy or commission new works of art which, in turn, will encourage galleries to offer more opportunities for one-man shows.
§ We are extremely fortunate to have my noble friend Lord Gowrie answering for the Government as he has particular experience and knowledge of the matters under discussion. If my noble friend accepts that there is a need for the introduction of new tax legislation to stimulate private patronage, perhaps he will consider some of the options available to him. I should like to suggest six possibilities.
§ The first possibility is that original works of art be no longer subject to VAT. Indeed, VAT adds greatly to the complications of the art dealers and customs officials, since some artists are registered and others are not registered. I understand that in many cases dealers are made to charge VAT on all sales, whether or not the artist is VAT registered, in order to facilitate the keeping of records. All this confuses the non-registered artists and reduces their chances of sales, since their prices have to be raised to the same level as the prices charged for the registered artists, which include VAT.
§ The second possibility is that artists with consistent records, who are not registered and who are working part-time, should be able to reclaim VAT on the cost of materials. The third possibility is that the Government accept the suggestion made to the Pile Committee, which is in line with a Canadian concession, whereby any person is able to spend up to 2 per cent. of his or her gross income on works to be allowed against taxation. Fourthly, there should be clearer and fairer rules whereby part-time artists can claim losses against business income so that they would be less dependent upon individual tax inspectors. Any artist 1351 making a profit in two out of five years should be considered to be a genuine professional artist, able to claim expenses against income.
§ The fifth possibility is that companies be allowed to make capital donations to galleries registered as charitable organisations and claim relief, as happens in America. This would enable galleries registered as charities to be given new works which would be available for public viewing, instead of piling up in artists' studios. The sixth possibility is that businesses be allowed to purchase works of art to decorate and embellish their offices on terms which would enable the depreciation value of the works to be set against tax. Offices would be allowed to buy works to a given sum.
§ I realise that works may appreciate rather than depreciate in value, but there could be some stipulation whereby a buyer under this scheme would derive no financial benefit by a sale. This would remove the element whereby works are bought with an eye on investment rather than on quality or enjoyment. Any criticisms on the grounds that this proposal would encourage the supply of work for the benefit of a relatively small number of privileged people might be blocked by a stipulation whereby, if the work was later sold, the amount received from the sale would be given back to the Government.
§ On behalf of the artists I would urge my noble friend to find a way to help artists. My noble friend is in a position to know what is possible when dealing with a not altogether sympathetic Treasury and Department of Inland Revenue. We know that he is sympathetic to our problems and that our concern is his concern. My reason for putting down this Question is to urge my noble friend to press on with finding some solution to our difficulties.
§ 7.54 p.m.
§ Lord Strabolgi
My Lords, we must be grateful to the noble Earl, Lord Haig, for raising this important Question this evening. The noble Earl is a practising artist, and a very distinguished artist at that. He has spoken with great sincerity and deep knowledge of the tax problems as they affect the professional artist today. The noble Earl touched on one or two of those problems, and I should like to develop what he said.
Many tax inspectors try to prove that the artist, even the professional artist, is actually exercising a hobby and is not entitled to offset losses and certain overhead expenses against income. There seems to be no uniformity of approach throughout the country. I understand that some inspectors try to argue that the artist is not engaged in a profession and that this is some casual source of income. The burden is on the artist to convince the inspector in every case.
I should also like to support what the noble Earl, Lord Haig, has said about VAT, which drives up the price of an artist's work. and to ask the Minister—whose presence we welcome here this evening, and who is also a Treasury spokesman—if consideration could be given to exempting original works of art from VAT in the same way as books are exempted. In France and Sweden the first sale of an artist's work is exempted from VAT, and so I do not 1352 think it would be very difficult to try to give that concession in this country. Why do we always have to lag behind other countries in this and other respects?
Can something also be done to arrest the decline in the number of part-time artist teachers in art schools? At a time of recession and cuts, when there are reductions in the teaching staff of an art school it is usually the part-timer who has to go. The Department of Education and the local authorities seem unwilling or unable to grasp what that great inspector of the old LCC art schools, Mr. Tomlinson, knew so well: that it is more interesting and stimulating to be taught by a practising, working artist, and that he is usually a much better and more inspiring teacher. Students nearly always prefer to be taught by a working artist, and I can vouch for that personally as someone who at one time had the privilege of being taught by both Henry Moore and Graham Sutherland, when both, at the beginning of their careers, were part-time teachers at Chelsea in the early 1930s—and excellent teachers they were.
Training in the fine arts is surely important even from the most materialistic point of view—and I think that this should appeal to the Government—since industrial design often stems from the fine arts and depends on them. We neglect the fine arts at our peril as an industrial nation, and, as the noble Lord, Lord Cockfield, said just now in the last debate, we need better design. It is important, too, that a proper balance should be struck between what we spend on preserving our past heritage, and keeping it within these shores, and what we spend as a nation on our present creative activity. France is currently spending the equivalent of £4 million on acquiring contemporary French art. Too often we tend to look almost exclusively back to the past and to forget that our present will he their past for future generations who will judge us to some extent according to the artistic legacy we leave them.
The stimulation of patronage is all important if both the artists and the galleries are to survive. As we all know, the Contemporary Arts Society has done much to encourage corporate patrons to purchase contemporary art, but more needs to be done to open up sources of support on a significant scale—as is done in the United States, where very generous tax concessions are given to donors of works of art and to galleries. Tax concessions are also given to industrial companies. The value of works of art owned by industrial companies in America amounts to many millions of pounds.
In order to encourage the collector of modest means, who is just as important, the possibility of organising something like art lotteries, such as have existed for a hundred years in Sweden, should be examined, as should the provision, too, of interest-free loans, such as operate at the Arts Council's Hayward and Serpentine Galleries and under the Welsh Arts Council's scheme to enable private buyers to spread payment over a number of months.
But much more remains to be done to raise the general public consciousness of the attractiveness and possibly even the financial advantage of acquiring original works of art, although they should always be bought because you like them and not as an 1353 investment. One significant way in which the patronage of artists can be extended and their work brought before the public is by commissioning works of art for public spaces, and over the past five years I understand that the Arts Council's scheme for grant-in-aid for this purpose has encouraged considerable activity in this area.
However, unlike some European countries and several states in the United States, this country has no legislation providing for a percentage of the building costs of public buildings to be spent on art works; that is, art works which are both inside and outside the building. If legislation could be introduced, it would open up a considerable area of patronage not yet available. Therefore, I hope that the noble Earl, Lord Gowrie, will give our artists some encouragement this evening. I trust that the noble Earl the Minister will never forget that he is just as responsible for encouraging the arts of the present as for helping to preserve those of the past.
§ 8.2 p.m.
§ Lord Beaumont of Whitley
My Lords, I too, should like to thank the noble Earl for initiating this debate. I am rather overcome by the expertise in the art world which has been shown by the speakers so far and which no doubt will be shown by the speakers who are still on the list. I cannot boast any such expertise myself, except possibly my wife's expertise, because at the moment she is representing the Contemporary Art Society in Scotland and buying pictures from contemporary painters with the funds of that extremely-to-be-praised body, and thereby possibly doing more for contemporary painters than we are in your Lordships' Chamber. But I suspect that we may have a longer lasting effect, because I think that a great many things can be done and a number of them should be close to the heart of a Conservative Government.
The fact that we have a Minister for the Arts, whose heart and soul we know is in this matter and who is on the side of those who are speaking today makes it the more important it is that we underline those areas where it is quite clear that this Government should be making progress because they have motivation to do so.
First, the Government claim to be, and to a certain extent have shown that they are, on the side of small business. The artist today is the small businessman par excellence. He may not always be pleased to be called that, but nevertheless that is what he is and in so far as he can be helped to be a successful small businessman, that should be part—and I am sure it is—of the Government's intentions.
There is also the necessity or the desire, which I am sure the Government have, to make the artistic community more reliant on themselves and less so on that queen of quangos, the Arts Council. That is not to denigrate in any way the Arts Council, but given that the Conservative Party has this particular interest in encouraging private enterprise and the field outside quangos, I think it is very good that we should try to find as many sources as possible. I know that in fact the Minister is spending a great deal of his time doing this.
Thirdly, it is good for this Government to he concentrating on this because, like every Government before them, they are keen on trying to expand our 1354 industry and our exports. The existence of a number of practising artists provides a pool of talent for design and for commerce which is a beneficial background. The beneficial background of arts and crafts helps to increase the ability of our industry to produce the goods which are needed and which are aesthetically desirable.
Fourthly, I think there is a need—and I believe the Government realise there is a need—to do something about contemporary art, because I do not think that we shall have a thriving art market in this country unless we have thriving contemporary art. There are signs of a very real danger that the position held by this country until recently of being the hub of the art market of the Western world may alter as, for instance, insurance shows signs of doing and the City shows signs of doing. Art, too, may be under threat and the possibility of the art market moving to other countries should not be lightly passed by. However, the noble Lord the Minister will probably know more about that than I do.
I also have a list of suggestions which I think the Government might take up. Some of them overlap those mentioned by the noble Earl, Lord Haig; some overlap what the noble Lord, Lord Strabolgi, said. Like them, I shall be brief in explaining them. However, even if the Minister cannot immediately give us a great deal of encouragement—I hope he can give us some—there are signs that at the end of the debate there will be a great deal of material which he can take away. None of these ideas which we are putting forward from the various Benches round your Lordships' House is, of course, new, or hardly any of them are new. But they are ideas which, to a certain extent, are receiving a wide range of backing. As this consensus is rising in the parts of the community which are interested in the arts, so it encourages a Minister who is on the side of the arts to try to push forward some needed reforms.
The first matter I would mention, which has already been mentioned, is the droit de suite, or the possibility of having a taxation on subsequent sales of an artist's work. That can either be in the form of copyright, which goes back to him, or it can actually be a tax which goes to the help of the arts as a whole. I should have thought that the first was the more preferable of the two, but in Europe both methods are used in a number of different countries, and it is something which certainly ought to be introduced in this country in one way or another. We have paved the road with public lending rights for books; I think we ought to go on to the droit de suite.
Secondly, there is the question of VAT, which has been raised by all speakers so far. I should particularly like to take up the point made by the noble Earl, Lord Haig, about agents being required by the Customs authorities to charge VAT on smaller artists, even where those smaller artists—and I do not think that the noble Earl mentioned this particular point but it is absolutely vital—themselves cannot claim back the VAT for the materials because their income is too small to he under the VAT scheme. This is a real injustice and something which ought to be put right as soon as possible, and I should have thought that there was no reason why it should not be done.
1355 Thirdly, there is the easing of the ability of companies who wish to do so to make commissions to the arts against tax. The present rulings by the income tax authorities as to what is admissible and what is not admissible, although logical in their way, militate against enlightened patronage. There is not all that much enlightened patronage that we can afford to turn down or discourage that which there is.
Fourthly—something I do not think has been mentioned—there is possibly the need for a copyright collection agency. This is a subject which has not come up very much, but Art law (the service which has helped a lot of artists over the last few years and which I shall come to in a moment) has had 2,000 cases over five years dealing with the infringement of copyright in industry and in publishing, and in all sorts of ways. On the whole, artists have no particular help with this, and it is difficult for them to seek redress. But they have been able to use Art law. Unfortunately, Art law has now ceased to operate because it no longer had any money; but there is a need for this kind of protection, and there is a precedent for a copyright collection agency which could possibly be supported partly by the Government or. Perhaps, by the Arts Council. It is an idea which certainly should be taken up and urged on behalf of artists.
The abolition of part-time teachers, or the fact that the employment of part-time teachers in art schools is dying out, has already been mentioned. It is a British phenomenon. It does not. I gather, happen in many other parts of the world, except the other side of the Atlantic, and it has been tremendously important. The influence of live artists, as has already been mentioned, is good in itself. The mere fact that it keeps artists working, and working in a productive way, and keeps them off the dole and keeps them from the unemployment queues, is surely worth while.
I have talked already about the income tax authorities. There is need for criteria to be given to the income tax authorities, possibly after informal talks with the Arts Council, to exclude the hobby artist and, therefore, to be able to support more wholeheartedly the full time artist who exists and needs support. We can no longer follow Duchamp's remark that if you say you are an artist, your are. One can have some sympathy with the revenue authorities if they do not entirely accept that: but the answer to it is not just to have a hotchpotch, as we have at the moment; the answer is to lay down guidelines.
Also in this field, there is the question of bursaries and grants. From time to time there is doubt whether or not these are taxable. If they are ex gratia, they are free of tax; if they are regarded as income, they are subject to tax. This is unclear even with Arts Council bursaries and grants.
Finally, I have been helped in compiling this list by the people who have been running Art law for the last few years. It was an admirable body. It fell between the stools of subsidy and self-sufficiency. On a subsidy of £10,000 a year, which it had for a little time, it managed to release something like £200,000, or maybe even a quarter of a million pounds, of useful advice to artists. It was a great mistake to let this body disappear. It is not really the fault of the Government 1356 as such, but I have no doubt that the Government themselves could do something to renew the work of Art law.
Altogether, there is a vast range of areas in which the Government can act and in which, if they have the will, they can achieve something. There are probably objections to every single one of the suggestions I have made; but objections are meant to be overcome, and when the aim is worthwhile a good Government overcome them. The aim in this case is undoubtedly worthwhile. Over the last 20, 30 or 40 years this country has become a haven of the arts. It has lived down the reputation of being a Philistine country, which it had for so long. It leads the world in a great number of areas, and visual art is not one in which it is far behind. It would be a good thing for art as a whole, and for this country, if the Government were to give it and its artists the encouragement they need.
§ 8.16 p.m.
§ Lord Hutchinson of Lullington
My Lords, I, too, am most grateful to the noble Earl for initiating this debate. It is most gratifying that it should be initiated by someone who is a practising artist. It must be, I would have thought, almost unique in this Chamber. It has also been a great privilege to have heard in this Chamber the speeches that we have heard so far this evening on this subject.
I must at once declare a direct interest in the subject matter of this debate, because not only have I had a lifelong love of the visual arts but I have, at the moment, the privilege of being the chairman of the trustees of the Tate Gallery. That gallery is the one most intimately involved in the country, I suppose, in the purchase of contemporary art. We do not deal in works; we are not allowed to sell; and the money that we spend on the purchase of works of art, for the most part, comes from the taxpayer. For those reasons, perhaps I am able to look at the present tax arrangements in relation to contemporary art with a modicum of personal detachment.
Before so looking, I should like to make one or two general observations. Whereas I am, and always have been, acutely aware of the difficulties which have already been referred to in the financial situation of the great majority of practising artists, and indeed craftsmen, nevertheless there has been a substantial improvement in their lot over the last two or three decades. There are many more artists practising in this country now than there have ever been. There are many more outlets for their work by way of commercially and publicly supported gallery spaces up and down the country. There is a slowly increasing number of patrons: not only such bodies as the Arts Council, the Government art collection, the Tate Gallery itself and other provincial museums. but a large number of unlikely commercial firms who are buying contemart work, as the noble Lord, Lord Strabolgi, has said, through the Contemporary Art Society.
What is still missing, unlike in many European countries and across the Atlantic, is a broadly-based section of the art-loving population with a real and sustained enthusiasm for privately purchasing works of art—and that was referred to by the noble Earl, Lord Haig, in introducing this debate. I think that that 1357 is largely due to the small amount of space in reviews in newspapers and periodicals which is given to the work of contemporary artists, and, I am bound to say, to a certain lack of enthusiasm, passion and love in the writings of art critics which might well communicate itself to potential purchasers.
But the buying of contemporary art still largely depends on relatively small groups of people and institutions buying a unique object. It is that which distinguishes this form of purchase from other commercial purchases. In the market for prints it is of course much less so, and here again there has been a very great expansion in the past 20 years.
Having said all that, nevertheless I know very well the problem of artists, which has been referred to in relation to supplementary benefits, and their present inability to register as artists. I know the dilemma to which the noble Earl, Lord Haig, has referred. It comes as a great shock to me to hear that the organisation Art law has packed up. I did not understand that it had already done so. I should like to pay a great tribute to the work it has done. It is a complete disaster to great numbers of artists in this country and for institutions if that is really so. The work that that organisation has done for individual artists and for art institutions is absolutely out of proportion to the skeleton staff with which it has run; a staff which has largely consisted of lawyers—solicitors and barristers—working in their free time and giving free advice to artists over innumerable numbers of legal problems which have come their way. The Arts Council suddenly ceased to support it on the basis that it was only a service organisation. It is no doubt as a result of that that it has met its demise. If the Government can do anything to support that organisation they would repay a thousand fold the tiny amount of money it needs to carry on.
Returning to the centre of this debate, the first and most strangely unacceptable matter which occurs to us at the Tate Gallery, and which has already been referred to before, is that whereas books, magazines, composers' compositions (good, bad or indifferent) are zero-rated for VAT, the works of visual artists—who use canvas, paper, metal, wood or stone, and so on, to convey their unique works of imagination—paytax at the full rate. The noble Earl the Minister will know that I have had some correspondence with his predecessor on the question of VAT. I have recently continued that correspondence with him. I know he will forgive me if I take this opportunity to say in public some of the things which I have said to him in private.
It is the first purchase of an author or composer which is zero-rated, but the effect of that is to free from the tax everything that has gone into the work. The simple fact is that books are zero-rated and are free, but paintings and sculptures are not. Is the Minister really prepared still to justify that discrimination?
Once an artist's turnover reaches a certain point and he has to register for VAT, particularly in the case of a sculptor buying the complex materials of his trade, it may be many, many months before he can sell his completed work and recoup his VAT payments. He will then have to pay possibly 40 per cent. or 50 per cent. commission to a gallery and on top of that pay 15 per cent. VAT. As far as my gallery is concerned, and public museums, such a museum is treated as provid 1358 ing a free service and not conducting a business. Thus related inputs are not deductible. Therefore we carry the full rate of VAT. When I say "we", that is the taxpayer pays the tax on the purchase of works from living artists.
If artists and dealers sell abroad they are not troubled by VAT and nearly every successful dealer in this country has built up a significant foreign clientele. The result is that many British artists' work simply goes straight to the dealer and out of this country. Thus so many of our greatest artists and most successful contemporary artists have a reputation abroad far higher and far greater than the reputation they bear in this country. I wonder whether that is not one reason why nearly all the substantial collectors of modern art are presently to be found outside this country.
The next fact which irks us at the Tate Gallery is that when we buy the works of dead artists for the British historic collection we pay no VAT, but when we buy for the modern collection from contemporary artists we pay the full rate of 15 per cent. I ask the Minister again can he really support this discrimination? A third matter which irks us is that we observe secondhand works of art passing through dealers' hands where VAT is levied only on the dealer's margin. Yet, if we bought direct from the artist, we would have to pay the full rate of VAT. I hope the noble Earl will not tell us when he replies that the Government cannot now extend the zero rating provisions and, because VAT is charged on all commercial transactions on the sale of goods and the provision of services, that no exceptions can be made, for if exceptions are made, the floodgates will be open and he, the Minister for the Arts, can claim no priority.
We all know that VAT is broadly based. We all know, first, that in 1972 books were exempted by a political decision. We all know that, secondly, since then there have been innumerable ad hoc exceptions, especially in regard to the export of goods. Thirdly we all know that recently, when it looked as though the nation might lose a great heritage building, in a period of days the VAT (Works of Art) Order 1983 was tabled exempting from VAT disposals from historic houses. It can be done and it was done. I should like to urge upon the Minister, knowing where his heart lies in this matter, that it should be done in relation to those matters which I and other speakers have raised this evening.
When we import works of art—and our national duty at the Tate Gallery is to build up our collection of modern foreign art—we enter a tax jungle. One example—and there is no time now to go into many others—is that a work which already has been disposed of by its creator, or his estate, attracts no VAT if the disposal was before 1st April 1973. But if that work has been kept by the artist or forms part of his estate at death—we all know that artists very often keep back their most original and interesting work—if we acquire such a work by purchase, gift or bequest we must pay 15 per cent. VAT. This is no small burden, because, for instance, an outstanding work by a contemporary American artist may well be worth 300,000 dollars. If left as a gift to us—that is in reality a gift to the nation—it would attract VAT of no less than 45,000 dollars.
1359 I would say to the noble Lord that not only does that thwart the wishes of the testator but it is hardly an encouragement for us to set up an organisation for the encouragement of gifts from our American friends to museums over here. I would ask the Minister, first: Why not exempt first sales by living artists—and this has already been mentioned—as is done in France and various other countries? I understand that there is a UNESCO recommendation to this effect. I would ask the Minister, in passing, what the Government have done in regard to that recommendation. Secondly, why not exempt all gifts and bequests to national collections?
Thirdly, why not permit the purchase of works from abroad free of VAT when they are already free of import duties and so create a reciprocity and thus help British artists in selling their work in the same way? Indeed, the Minister may know that there is an EEC regulation which I hesitate to spell out—it is the Sixth Council Directive of 17th May 1977—which places this obligation on all members of the Common Market. I would ask the Minister again whether there has been any agreement on such a directive up to date.
Before sitting down, I would also like to support the idea (which was mentioned by the noble Earl in initiating the debate) of the embellishment of public buildings, an idea which has been particularly supported by the President of the Royal Academy, Sir Hugh Casson. I should also very much like to hear from the Minister what are his views on droit de suite mentioned by the noble Lord, Lord Beaumont, whereby the artist will obtain some small percentage on the resale of his work when, as so often happens, the work was originally sold for a contemptibly small sum and then, a few years later, when the dealers and the buyers realise suddenly that this is a work which in every way is highly desirable, it is resold at a very substantially increased price. At the moment, the artist sees absolutely nothing of that increase in value.
Other matters have been raised. I should like to support all those matters which have been put forward by the noble Lord, Lord Beaumont, and the suggestions that he has made. I would submit that all these matters are exactly within the remit of the Minister for the Arts. I know that the noble Earl has a very particular love for the visual arts. I know that he has a very particular experience and knowledge of the market in the visual arts, and I know, too, that he has a very particular fascination for economic and fiscal problems. I know that he is a man of imagination and determination.
I can only say that there are at this moment very many persons involved in the world of art and, above all, and always, the artists themselves, and they, as of today, have a real belief that the new Minister for the Arts may really be able in the months to come to make a great contribution in sorting out the complications and injustices of the whole tax system, and particularly the VAT tax system, which weighs down on the artists of this country. It has already been said that, whatever we have achieved in this country in the last 10, 15 or 20 years, and whatever we have not achieved in this country, economically there can be no argument whatever that, as far as the arts are concerned, this country stands pre-eminent.
§ 8.34 p.m.
The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie)
My Lords, although it has been a brief debate, this has been an extraordinarily fascinating one. It is probably as well for the Inland Revenue and the Chancellor of the Exchequer that Money Bills do not have to go through your Lordships' House. Many years ago when I first became interested in painting—a love which has remained with me all my life, although even at the age at which children can do virtually no wrong on paper my own paintings were various shades of khaki on mud—I ran into a large and vibrant landscape in the wilds of Donegal which I took to be by a local painter. It turned out that it was, in fact, a painting by my noble friend Lord Haig. I looked at it and have stayed in the house where it resides on many occasions. It has long been my ambition that when eventually released from the cares of office, and from the salaries of office, I might be able to afford to purchase a picture from my noble friend. I urge all of you to do so; because not merely is he a painter in your Lordships' House but he is an inordinately good one.
I welcome the chance to pay that personal tribute to him but also to pay tribute to him for raising the debate in the way that he did, for making many suggestions to the Government in an informed and moderate way but also in a way that stimulated other noble Lords. I shall try to comment on as many of these issues as I can, given the lateness of the hour.
I would ask your Lordships to remember that all tax changes, however desirable—and I am the first to recognise how many anomalies there are in all taxation systems—represent forgone revenue; and it is difficult for any Government to make concessions in one sector which can so easily be held unfair to another sector. I will return to that important point in a moment. In general, as a Government, we believe that the rules of taxation need to be simplified rather than made additionally complex. There is always the problem that concessions and the boundary disputes that thereby arise—andsome will always arise—have the overall effect of complicating the taxation system. They also give rise to a loss of income. This has to be considered in an economy such as ours where a very great deal of art support is publicly funded. But I do not believe that in any way at all we have an ideal tax system. I would, as I have said, like it simpler and more equitable, and therefore the suggestions which have been made are in general most valuable and interesting, and we will as an Administration look at them very hard.
May I start by saying to my noble friend that he was quite right to take the Government's manifesto commitments as a test. We mean what we say in our manifesto and we shall be judged accordingly. Our record to date I believe is good in this area. Since 1979 there have been significant changes. There has been a substantial reduction in the minimum covenanting period for gifts to charities, including arts charities. I hope that the wife of the noble Lord, Lord Beaumont, for whose efforts I have the greatest regard and I have some knowledge of them, will benefit from those efforts accordingly by this significant change.
The Government have also simplified the requirements for public access to conditionally exempt works 1361 of art, particularly in the case of houses not regularly open to the public, and have provided much clearer information about such relief. They have also provided substantial tax reliefs for endownments for heritage property, including works of art, and, in addition (as the noble Lord, Lord Hutchinson, reminded us) last summer a VAT concession was introduced in respect of the disposal of works of art from historic houses in the case of private treaty sales and acceptances in lieu. That has indeed been widely welcomed, so I do not think this is a record to be ashamed of, and of course I hope very much to build upon it.
Theoretically there are two options open to the Government. Either we seek very fundamental changes in the present tax structure or we operate within the overall present framework and seek to make modest improvements. The tax changes which have been suggested in the report of the Select Committee of another place, and which have to some degree been argued here tonight, would fall into the former category of being fairly fundamental. They would enable individuals and companies to spend a percentage of pre-tax income on their own selected causes. Of course that could not—and should not—be restricted to the Arts. That expenditure—unrestricted, as I say—would be allowed against general taxation.
As everyone knows and as many have mentioned tonight, this is very broadly the American system and it has engendered a great deal of private and corporate support of activities throughout American society. But it is not the British system. We start from the proposition that the state collects and disposes of the money required to run essential and other services, supplemented—and the supplementation is of increasing importance—by earned income, private covenanting and business sponsorship. The transition from one system to another would be a massive operation, and the upheavals of the transitional period would undoubtedly damage many worthy causes, institutions and operations which at present are reasonably well run under the existing arrangements.
However, I can say that as a firm enthusiast of open societies and capitalist economies, I should like us to move steadily and without disruption towards something a good deal nearer to the United States system, as it has for a long time seemed to me that public spending through fiscal arrangements is overall a freer system than public spending by means of direct subvention. But I must say that such a move would take more than a generation to achieve, and I remind the noble Lord, Lord Strabolgi, in particular that it would in no way be welcomed unconditionally by most present Arts organisations, as it would inevitably mean a loss of funding in terms of direct subvention at one stage or another.
So I think the more realistic option, in present terms, is to look closely and continuously at the taxation system that we have and see what modifications might improve it. It is in this sense that I welcome some of the suggestions that have been made tonight, and I can assure the House that the Government will continue to look at the various possibilities.
Let me comment very quickly on a few of the suggestions that your Lordships have made. Much 1362 mention has been made of course of the proposition that original works of art should no longer be subject to VAT. My noble friend talked of this, as did the noble Lord, Lord Strabolgi. The noble Lord, Lord Hutchinson, devoted a great part of his extremely persuasive speech, if I may say so, to the problems of museums and other bodies engendered by the VAT system. As the noble Lord, Lord Hutchinson, anticipated, VAT is a highly efficient tax. It is designed, and operates, as a broad-based revenue tax and it would be very difficult to keep that consistency and efficiency of operation the moment one started introducing special reliefs. Existing reliefs are limited for the most part to items of significant and continuing expenditure by ordinary families: food, house prices, rents, public transport, fuel and children's clothing.
In this context, much though I should like to see works by living artists regarded as the essential fare of living, it seems to me it is very difficult to justify singling them out for special relief. This is where the problem of any exemptions from broad principles does in fact occur because the very difficulty about the book exemption—which, as an avid reader and purchaser of books, of course I in no way regret—is that it does provide an exemption. Here I agree with the noble Lord, Lord Hutchinson, that it is indeed difficult to justify the difference of that exemption with other works of art.
But what I think he is suggesting would lead to other claims for exemptions which again would be hard to defend; and so, if you like, the domino theory would come into effect and the overall efficacy of VAT would be very greatly reduced. However, I can say from my experience in the Arts market that what the noble Lord, Lord Hutchinson, has told us about the incentives to sell abroad are of course absolutely right. This does seem to me to be extremely difficult to defend. For that reason, while I doubt whether there is very much I can do about it, I certainly do not propose tonight to defend it.
I come now to the recommendation of the Pile Committee, which was mentioned by my noble friend: the question of donations by individuals being allowed against taxation. This is in essence the American approach, which I have referred to; and any percentage—whether 2 per cent. as Pile suggested, or a higher amount suggested by the Select Committee —would represent a major change. It is essentially a proposal for tax deductibility for single donations by individuals to support the Arts; and successive Governments have taken the view that tax relief should go to payments made to charities, including of course Arts charities, under deeds of covenant. Again, perhaps this is where we should see some significant growth in activity in terms of the creation and maintenance of Arts charities.
The present Government have followed the Goodman Committee's recommendations in reducing the period of charitable deeds of covenant from seven to four years and in providing for higher rate of tax relief generally. The case for going further at the present time—which of course would have implications for other charitable payments—has not really been established. I believe the argument of many corporate finance directors that there is no real change 1363 from seven to four years is not well founded and that charitable bodies should continue to prod them vigorously.
May I say in passing at this point to the noble Lord, Lord Strabolgi, that of course I am aware that many distinguished artists—many of whom are friends of mine—supplement their incomes by passing on their skills in teaching. I am sure that will continue.
§ Lord Strabolgi
My Lords, I am sorry to interrupt the noble Earl, but the point I was trying to make was that with the cuts in education, including the art schools, if a member of the staff has to leave it seems to be the part-time artist who is asked to do so. This is something that the Department of Education and the Government do not seem to understand. They do not appreciate the importance of the part-time artist as a teacher. The noble Earl does, I know, and I hope that he will try to get this over to his colleagues and to the local authorities.
The Earl of Gowrie
My Lords, in spite of spending constraints and such market factors—if I may put it that way—as falling pupil rolls, the overall spending of local and central Government on education is still very large, and I do know that there is the temptation to dispense with the part-time artist. But, given the relatively low cost of part-time artists, it should be possible for most authorities to resist these temptations. I hope they will pay heed to what the noble Lord says. He will appreciate, however, that I cannot require them to order their budgets in this way. I can simply point out that, in relation to total spending on education, spending on the arts is small and that the maintenance of a corps of part-time teachers should be possible.
§ Lord Beaumont of Whitley
My Lords, the noble Earl is deploying an extremely good and detailed reply to the debate as a whole, but a very important point has been raised. In his reply the noble Earl seems to be skating over the fact that these part-time teaching posts have been disappearing at a rate of knots over the last few years, and are still disappearing. He and I both know artists who have still got such jobs, but I know for a fact that a survey in the art teaching profession which covered the whole country showed that these jobs have disappeared. I would be the last person from these Benches to say that the Government ought to be forcing on local authorities exactly what they should do in this particular way, though I am surprised that the noble Earl, speaking from those Benches, is prepared to defend that point of view at this particular point in time. Nevertheless, is there nothing that the Government and the Minister for the Arts can do to tackle what has already been seen to be a very grave problem indeed? It is not a minor matter; it is a very important matter.
The Earl of Gowrie
My Lords, what the Government can do and what the Minister for the Arts can do and, indeed, has done is to point out, as I have already said, that against the overall funds which are available the process of axing part-time artists, which I fully acknowledge has taken place to some degree, need not be necessary. But I cannot enforce this method of 1364 spending, as the noble Lord, Lord Beaumont of Whitley, has acknowledged, on local authorities. What we can do is to draw the situation to their attention and to generate, as no doubt this debate will help to generate, public pressure that they should not make economies in that particular direction, or should do so with the greatest care and vigilance.
Tax relief is not given for purely personal expenditure which any individual chooses to incur. Surely it would be wrong that the tax system should subsidise the expenses of pursuing a particular hobby, whether the hobby be a high art form like painting or the manufacture, say, of corn dollies. But the losses of a professional artist, whether he is part time or full time, from his profession are in fact allowable for tax. Whether what is done amounts to the carrying on of a profession is a question of fact. Evidence of commercial exploitation would be looked for. An individual must show a real and substantial attempt to market works for profit. I do not believe there is a basis for changing this rule at present, though I shall look carefully at what has been said.
I turn to single donations by companies. This option is arguing for a tax deduction for single donations by companies rather than individuals to apply to the arts. The same objection applies, I believe, as applies to donations by individuals. It is true that tax deductions for single donations by both individuals and companies are given in the United States, but America does not have the deed of covenant system and, as I said earlier, does not of course make the overall levels of public subvention that we do. Companies can make donations to the arts by means of deeds of covenant and I urge them to do so.
The issue of company tax allowances for the purchase of works of art was raised. I was very interested in what my noble friend had to say on the subject. A business can already deduct for tax expenditure incurred for the purpose of earning its profits. Expenditure of a capital nature may qualify for capital allowances. I am not wholly clear what has been recommended: whether the concession would be a deduction or a form of capital allowance. I have to acknowledge that, either way, it would involve extending tax relief to items of expenditure which I believe it would be slightly difficult to argue were strictly necessary for the purpose of generating profit. Again, any concession sought in respect of paintings could set a difficult precedent for allowing all manner of non-business expenditure, and there would be questions of fairness and equity in respect of other art forms. However, I view with some interest what my noble friend said and I shall continue to give it more thought.
May I now say something about tax credits. The concept here does, on the face of it, appear to be attractive but in fact the proposal would involve considerable complexity, particularly in terms of who would be entitled to redeem a credit and over what period; to whom would credits be transferable; and how would their loss of value through inflation, over a long time span, be treated? The noble Lord, Lord Beaumont of Whitley, and also the noble Lord, Lord Hutchinson of Lullington, asked me about the droit de suite. I am afraid that the noble Lord, Lord Beaumont of Whitley, somewhat anticipated my reply when he said that objections were raised to every suggestion he 1365 made. The noble Lord is a pessimist, and pessimists usually find that the world works out in the way they want it to work out. However, we do see great practical problems in any proposals for artists to share in the profits from transactions after the initial sale.
Wearing my other hat as a Civil Service Minister, I see one of them. This would certainly require many enforcement staff. That is an additional cost which would be borne by the estate of the arts as well as by the rest of us. In respect, too, of the copyright collection agency, I believe the Government would be reluctant to embark on yet another quango. However, the noble Lord might await perhaps a little less pessimistically the Government's overall proposals on copyright following the consultations which we are undertaking on the Whitworth Report.
I do not believe we should confine our attention to the ways in which the tax system supports the arts, because the arts are broad based and rely on many other incentives. Under present arrangements, the lion's share of subsidies is provided by central Government either directly or through the rate support grant to local authorities. But there has also been a very substantial growth in business sponsorship, and this is a trend that I expect to see continue. At present, the level of business sponsorship is variously estimated at £14 or 15 million a year, as against some £½ million only seven years ago. I fully believe that there is scope for much more growth. One of my main objectives is to encourage that growth and to emphasise to businesses, large and small, the mutual advantages that can he obtained from association with arts bodies.
To this end I have strengthened my own Ministry in its business sponsorship role and am campaigning actively up and down the country on the need for closer business involvement. But it is a marriage of two parties. The arts have to sell themselves and to be ready to market their product in a way which is attractive to business. At the same time, business should recognise that the arts offer a great deal of community value to the area in which they operate and can play a significant role in the marketing effort of the company which sponsors them.
I think, therefore, that we must increasingly look at a mixed economy in the arts—that is to say, greater box office, more private patronage and support by friends, additional business help and a continuation of central and local government support. This diversity of finance is one of the great strengths of the arts and is something to be encouraged. New developments will increasingly come not from more public funding in an area when it is a struggle to maintain it—and we will win that struggle—but from increased private support, perhaps triggered by elements of matching public resources in some cases.
Looking around the arts scene, the most striking feature to my mind—and the noble Lord, Lord Beaumont of Whitley, recognised this—is that it is currently so varied and active in spite of that which has been said about all the difficulties created by limited funding. There has been a resurgence of art activity since the war in this country, and I must pay tribute to the part which the Arts Council has played in engendering that. While London remains the hub of that activity, inevitably in a smallish country, it is 1366 spread increasingly throughout Great Britain. Moreover, it cannot be said that the arts are in any way parasitic. They have great earning potential, and the "high art" which on the whole receives the majority of public support is itself a seed bed for developments which percolate through the field of arts and entertainment.
I do not doubt that there are very real links between the interest in dance and the development of a musical such as "Cats" and the subsidized sector such as the Royal Ballet; and nor do I have any doubt about the connections between success in serious and so-called pop music. And, of course, the contribution of the arts to television in terms of writing, acting and producing talent is enormous. These are all reasons why the arts are a vitally important part of our society at the present time and why the Government attach such value to their health.
In conclusion, I wish to say that it is difficult to devise any system which is totally fair to all individuals or sectors. The essence of the taxation system is that it should create a broad measure of parity among all manner of sectional interests. If we begin to tamper with that system too radically and seek exemptions in too many particular cases, we risk not so much the merits of diversity but the confusions and expense of special pleading. I believe that we should seek salvation overall, not so much in terms of tax changes, which may in the short term help one group or another, but in terms of shifting the balance in the economy as a whole towards more wealth-producing and productive activities. In the longer run this is the safest way of engendering the lower taxes and the higher disposable income that can be used to benefit the community at large.
Our best efforts should be directed towards generating wealth which will enable individuals and groups within the community to give that degree of additional personal stimulus without which no artist and no subsidised venture can satisfactorily survive for long. I recognise with all the speakers in this debate that the tax system has a contribution to make to this end; and I shall try to see that its contribution is maintained.