§ 7.12 p.m.
§ Lord Cocks of Hartcliffe rose to ask Her Majesty's Government whether they intend to take any action on the buyer's premium charged by auction houses.
§ The noble Lord said: My Lords, the buyer's premium imposed by many auction houses is a concept with which very few people are familiar. 324 Therefore, perhaps I may say a few words about it. I spoke in a debate in February of this year initiated by my noble friend Lord Donoughue on horse racing. I said that I thought that those who were speaking represented all sorts of interests in horse racing apart from those of the ordinary punter—the person who places a bet from time to time. In a sense, I am in the same position this evening. Very few people are fortunate enough to be able to bring to your Lordships' attention a matter concerning auction houses.
§ The view that the punter should be represented was raised in a Home Affairs Committee report which recommended that the next government appointment to the Horserace Betting Levy Board should be a person seen by the punters as a voice for them. This evening I should like to feel that I am speaking for those who attend auctions and who bid to buy items and not for those who organise auctions.
§ The buyer's premium is comparatively recent. It has come to my knowledge through my interest in philately. From time to time I have bought at stamp auctions and I regularly receive a number of catalogues from different auction houses. However, I do not purchase from any auction house which imposes a buyer's premium because I believe the system to be extremely unfair. It was introduced in 1975 by Sotheby's and Christie's. The idea is that quite apart from a seller handing in his goods to the auction house to dispose of and paying commission, when those goods are auctioned, the final price at which they are knocked down—referred to as the hammer price—is added to by the auction house which charges the person who has bought the lot an additional sum, commonly 10 per cent., although it can vary. The 10 per cent. impost, which the customer must pay, also attracts VAT at the current rate.
§ That flies in the face of what I believe are the duties of auction houses. There seems to be a fundamental discrepancy between the auction house acting as an agent for the seller and the imposition of a commission.
I have the conditions of business under which Christie's conducts its business. Referring to the buyer, and under the heading "Christie's as agent", it states:
Save as otherwise appears, Christie's acts only as agent for the Seller".
I should have thought that that is self-evident. I have always understood that the duties of an agent were to obtain the highest possible price for the goods being sold. However, the words are "Save as otherwise appears". Paragraph 4, under the heading "Premium", states:
The Buyer shall pay to Christie's a premium of 10 per cent. of the Hammer Price together with VAT at the standard rate thereon and the Buyer acknowledges that Christie's may also receive commission from the Seller in accordance with Condition B4".
Condition B4, which concerns the seller, states under the heading "Commission and Expenses":
The Seller authorises Christie's to deduct commission at the Published Rates and Expenses from the Hammer Price and, notwithstanding that Christie's is his agent, acknowledges that Christie's may retain the premium payable by the Buyer in accordance with Condition A4".
§ When I was a boy, that would have been described as having one's cake and eating it. In Bristol we have a more homely phrase. We call it having the penny and the bun. Either way it seems that there is a clear dichotomy between the auction house acting as agent for the seller and being charged with obtaining the best possible price and, in addition, exacting a payment from the purchaser.
It seems to me that the duties of the auction house as an agent are very well summed up in a quotation from Sotheby's latest publication which states on page 11 under the heading "Selling at Sotheby's":
Operating on a commission basis, our reputation and success rests on securing the highest possible price for your property".
§ To me that is the proper aim of the auction house acting as an agent. If one imposes a buyer's premium on the person purchasing, that is diluted. The best possible price is not then obtained because those thinking of bidding will set themselves a limit above which they will not go. Sometimes they are overtaken by zeal and go above that limit. However, most people do set themselves a limit when attending an auction to buy particular lots. Perhaps they discuss the matter with their spouse beforehand. The buyer must take into account, when considering that limit, that he cannot pay as much as he would like because he would be faced with the buyer's premium of a certain percentage plus VAT on top. Therefore, that must be taken into the reckoning. By imposing the buyer's premium the auction house is lowering the price which it can get for the vendor. That is not good; in fact, it is double dealing.
§ When I read my Stamps magazine, to which I contribute regularly, I sometimes see articles about buying at auction. The articles give advice to people who are perhaps a little nervous about putting a toe into the water. They invariably say "Bear in mind, when preparing your estimate as to how far you are going, to go in bidding for particular lots, that you may have to pay a buyer's premium on top of that and you should adjust for that". Because that factor is taken into account by the potential purchaser, the seller suffers.
§ Perhaps I may give an example. I must not weary your Lordships, but ignorance on the subject is profound and unless one comes into contact with it. Some body buying a lot for £100 will actually pay £110 if there is a 10 per cent. premium, plus VAT. Yet there is still the commission to be deducted from the seller. To me, that is patently misleading because of the need to accommodate how the bid is adjusted. The public suffer from that. One wonders how far it has gone. There is a very wide range of auction houses with different conditions attached to the premium.
I thought that we had really reached a pretty pass when, in my latest edition of Stamps for the month of July, there appeared a full-page advertisement from Stanley Gibbons under the heading "The New Season". The advertisement for Stanley Gibbons Auctions states:
News from 'SGA' Buyer's Premium Down to 10%".
On inquiry I found that the buyer's premium was 15 per cent. plus VAT. In its puff Stanley Gibbons goes on to say:
As from the beginning of the new season … This means that for all sales from September 1991, the buyer's premium will be only 10% plus VAT which, we hope, will help to ease the burden in these difficult economic times".
That is probably Stanley Gibbons's way of saying that they are losing so much business by imposing a 15 per cent. premium that they have to lower it, though it is better to dress it up in that way. The public suffer from that. Certainly the national museums and galleries lose out when trying to buy works of national importance to add to their stock. I hope that my noble friend on the Front Bench, who knows far more about the subject than I, will be able to embroider on the matter.
§ To their credit, some auction houses have not imposed a buyer's premium when a public body has been purchasing, notably Phillips. However, when we consider that the total purchasing grant for all museums and galleries was just over £9 million and we compare that quite starkly with the profits of Christie's and Sotheby's for 1989 of 100 million and 188 million dollars respectively, we can put the matter into perspective. Frankly, I believe that the whole rotten system is merely a device for increasing income. It is a shoddy deception.
§ The sellers are victimised because they are getting less for their goods than they would otherwise. They are losing money. The auction house is getting paid at both ends. The premium is just a device to increase commission without the vendor realising it. The buyer gets absolutely nothing for the money he pays. I am very glad to have this opportunity to air this grievance. Many people who go to auction houses are aware of the abuse, but so far as I know there is no way in which this kind of grievance can be expressed except through one or other of the Houses of Parliament.
§ I hope that there will be greater public awareness of the subject. Tonight, I do not expect the Minister to offer any quick fix. However, I hope that the Government will consider whether the matter should be ventilated. They may wish to study the possibility of more publicity or whether there should be moves to have the matter looked at by the Office of Fair Trading which has already done a fair amount of work on the problem. I am not asking the Minister for a definitive answer now. I am very glad of this opportunity to raise the matter. I look forward to contributions from other Members of the House.
§ 7.25 p.m.
§ Lord Strabolgi
My Lords, I am sure that we are all grateful to my noble friend for putting down this Unstarred Question on what is really a very important subject. As he said, for some years now the leading auction houses have been charging what I may call "double commission"; that is, commission from the vendor for whom they act, as my noble friend said, and the commission which is called a "premium" from the buyer, which is 10 per cent. of the hammer price. The buyer's premium of 10 per cent. could be a substantial sum on the higher priced items.
My noble friend mentioned stamps and items of about £100. If one thinks of the large auctions which take place in London, mainly of paintings, on 327 £500,000 the 10 per cent. premium is £50,000; on £1 million, which is not unusual for a painting to fetch nowadays—in fact, some fetch even more—the 10 per cent. premium is £100,000. By a strange coincidence the decision to charge the buyer was brought in by the two leading auction houses, Sotheby's and Christie's, at the same time and the smaller auction houses soon followed suit.
My noble friend was very critical about the premium. I can understand the reason why it was introduced. The reason is that it gives more flexibility over the seller's commission when a prospective sale is being negotiated. If you are trying, against your rivals, to get a really important collection to auction, perhaps from the United States and amounting to, say, many millions of pounds, it is a great advantage to say to the prospective vendor, "We shall be happy to sell these Impressionists or Old Masters for you without commission so that you will get the full hammer price". All the auctioneer's costs and expenses, and the company's eventual profit, can be absorbed by the buyer's premium.
In this country we have never had any auction taxes; that is, a tax paid by the buyer on the hammer price. When such taxes have been proposed at times by the Treasury there has always been very strong resistance. The old argument against such taxes used to be that Britain alone had no taxes and that this was a great advantage to our auction houses in securing important collections from overseas—particularly from the United States—against our Continental rivals. That argument was somewhat undermined when our auction houses introduced their own tax on the buyer which they called, with the national love of euphemism, "a buyer's premium". There is also VAT which is only levied, fortunately, on the seller's commission and premium and not on the hammer price.
There is no buyer's premium in France although there are auction taxes. These taxes, which are levied on the buyer, vary from nearly 13 per cent. for smaller items up to the equivalent of £1,500 (say, 15,000 French francs) and descend by stages to under 5 per cent. for objects costing above the equivalent of £30,000. It will be seen, therefore, that a French tax on the more expensive items of only 4.965 per cent., plus VAT, is far less than the buyer's premium over here which remains unchanged whatever the price of the object at 10 per cent. throughout. I should like to ask the Government whether they have any evidence that the buyer's premium has depressed prices because, as my noble friend said, the dealer, in particular, and the collector have to take it into account when calculating how far they can bid.
There is a slump at the moment, as we all know. Only the very finest and rarest works of art and antiques seem to be holding their prices. It is likely, therefore, that the buyer's premium has come to stay, at least for the time being. However, I put in a plea for more flexibility and perhaps a sliding scale, rather than the rigorous 10 per cent. throughout.
I should further like to ask the Minister whether he will detail the division of responsibility for auction 328 sales in this country. The Department of Trade and Industry has overall responsibility, as I understand it, although the local authorities have some responsibility as well. Perhaps he will say what responsibility the Westminster City Council has, for example, for the four leading auction houses situated in the capital: Sotheby's, Christie's, Bonham's and Phillips. Who is responsible for supervising the conduct of auction sales to make sure that the law against pre-sale, non-bidding agreements, partnership cartels, dealers' rings and so-called "bids off the chandelier" is observed? In France auction sales are conducted by official commissaires-priseurs who are accredited to the French Government. Also in France the genuineness of items being auctioned is guaranteed. Here the auction houses give no warranty and accept no liability. That, of course, is included in the small print.
It is surely only a matter of time before the European Commission begins to examine the question of equalisation between our own and the continental practice concerning auctions. I wonder whether the Government have had any thoughts about that and what their attitude is likely to be, because they are two quite different systems. I happen to believe that the continental system is better and produces better catalogues. However, when it comes—as come it must —it will be an interesting question to determine. I look forward to hearing the views of my noble friend on the Front Bench and to the Government's reply.
§ 7.32 p.m.
§ Lord Crickhowell
My Lords, until I came into the Chamber this evening I had not appreciated that this item was on the Order Paper. I have been out of London today and I had not noticed it. I intend to intervene only briefly to say how much I agree with almost everything that was said by the noble Lord, Lord Cocks of Hartcliffe, when introducing this subject. We owe him a debt of gratitude. I have to declare an interest. I am a director of several West End fine art dealers.
Clearly there has been some conflict in recent years between the policies of the great auction houses and the position of the dealers. It seems to me that it was a deplorable step taken by the auction houses, using their dominant monopoly position. It is unquestionably true that the highest possible price cannot be obtained because any buyer will take into account the cost of the premium. It is also true, as the noble Lord, Lord Strabolgi, pointed out, that effectively we have seen the introduction of a tax, because not only do we have the buyer's premium but that draws down upon it a liability to VAT.
However, I do not think I shall follow the noble Lord in giving much encouragement to the idea that we should follow the French example. The French have been notorious for a very tightly-controlled system which ensures that only French auction houses, carefully listed on carefully controlled registers, can operate. It is impossible for competitors from this country or elsewhere to enter the market. I was glad to see in the newspapers within the past few 329 days that the EC has tackled this particular abuse and is about to open up the French market. That is a thoroughly welcome development.
I fear, however, that what we saw during this period of great vigour and activity in the art trade was a very concerted and successful effort by the great British auction houses to establish a dominant position in the market in a variety of ways. That has done some good for the nation in terms of considerable foreign earnings and the ability of those auction houses to take a very strong position in the United States of America.
However, one of the prices that has been paid undoubtedly has been considerable damage to the fine art dealer market in London. That price will not just be paid by the dealers but by many who have bought pictures during the period when the art market was hyped-up—and hyped-up, it must be said, by the auction houses. It was hyped-up on the basis of practices that involve not only offering to sell pictures for very little charge, or for nothing—as has been pointed out—but on the back of loans and financial support; often not disclosed and quite improper, in my view. That practice really ought to be condemned.
We have seen the art market hyped-up and we have seen the extraordinary expansion of the premises of the great auction houses spreading themselves in a grandiose way down Bond Street, behind Bond Street and in King Street in St. James'. All that has had to be paid for by someone, not least by those who have been paying the buyer's premium. However, we now enter a very different era; the worst slump in the art market that anyone I have met can recall. It is certainly the worst recession in the art market since the war. It is a slump that is putting many dealers out of business and which has completely broken the back of the very overheated market in impressionist pictures and in the more fashionable pictures. I am glad to say that I saw, in an auction I attended only yesterday, good quality English pictures now being bought for good prices by English buyers. There is some sign of recovery.
However, one of the features of the dealer business is that dealers do tend to offer guarantees and they frequently buy back from discontented customers. They offer reassurance to long-term customers that they will seek to look after them in later years. Many who buy in the auction houses, I fear at high prices, find rather painfully when the going gets rough that there are no such guarantees; that they are left with the high prices that they paid and are told that they must lump it. Therefore, I believe that the time has come for another look at this question. Certainly the auction houses ought to be asking themselves some questions. They ought to recognise, for example, that if there is to be a healthy art market it is a market that must have a healthy dealer market as well. The underlying basis of the art trade in this country has always depended on there being a healthy dealer market. The recent tendency of the great auction houses to seek to dominate and effectively to become dealers themselves seems to me a wholly deplorable development.
A very considerable service has been rendered by the House this evening by drawing attention to some 330 of these factors and by enabling us to comment on them. I hope that in this very different market in which we are now operating some thought will be given as to whether there should not be a re-examination of some of these changes that were introduced at a time when almost anything seemed to be possible in the art market. There was a feeling that somewhere in the world —in America and, most recently, in Japan—there were always those who would pay ever-increasing prices. We have seen scandal in the Japanese market break the confidence of many buyers. We are in for a different era; an era in which there will be a re-examination of the practices in the trade by all of us in the trade—I count myself as one. I hope that among those who re-examine their practices and ask whether they are really justified will be the auction houses in their operation of the buyer's premium.
§ 7.40 p.m.
§ Lord Morris of Castle Morris
My Lords, the Opposition Front Bench is by convention neutral on this question. I speak purely in a personal capacity. Although I cannot say of the buyer's premium, as the psalmist said of his tears, that it has been my meat day and night, I can claim a fairly close acquaintance with it during the 15 years I spent on the Museums and Galleries Commission, the last five of them as its chairman. It was throughout that period a matter of continual concern to us, as it was to all the museums and galleries of the United Kingdom, not merely in London but in Edinburgh, Glasgow, Cardiff, Birmingham, Manchester, Hull, Halifax and the many other places where museum matters matter.
Perhaps I may set a context. The buyer's premium was introduced more than 15 years ago, to a chorus of protest by museums, galleries, collectors and dealers alike, by two great auction houses within two days of one another. Originally, one charged 8 per cent., the other 10 per cent., but they very rapidly came together and standardised it at 10 per cent. The reason for its imposition was that, at that time, the art market was going into a slight recession, and auctioneers were naturally anxious to maintain their profits. The result was that they made very great profits indeed, and have continued to do so ever since, irrespective of the fluctuations in the market or the continued protests of Britain's museums, galleries, owners, collectors and dealers. I can find little record of any protest, or indeed of any comment, or indeed of any interest, by Her Majesty's Government during recent years.
Like many another thing we could well do without, the practice of charging the buyer's premium came to us from the Continent, where some auction houses had seen it as a means of making a quick franc, mark or lira. When it was introduced into this country it did very great damage because of the very high level of profits made by the auction houses which introduced it. It is commonly alleged, in the public prints and elsewhere, that those auction houses subsequently employed greatly enhanced publicity machines to push up values, and to tempt owners to sell their inheritance through the very high profile auction houses, and to the very great profit of those houses.
331 The result of these elevated prices for works of art—the word "hyped" is one I have commonly heard used, and heard again tonight, and not always by the vulgar—is that all our national museums and galleries have been unable to compete, because not only have prices rocketed skyward, but, at the very same time, the museums' purchase grants on which they rely to bid have been frozen by the deliberate, conscious policy decision of this Government for every one of the past six years. Time and again, one of our great galleries has simply turned away from the auction of an important piece of British heritage because it knew perfectly well that it did not have the money to compete with foreign buyers at these astronomical prices.
The museums must pay the 10 per cent. buyer's premium and the greatest auction houses look most unkindly on any auctioneer who does not charge this premium to the national museums and galleries or threatens not to do so. And so, one after another, these works have gone overseas, and the haemorrhage of the heritage has quietly seeped on. The most recent example, but only one among many, is the Badminton Cabinet, sold for £8.7 million to the United States. The Fitzwilliam Museum and the National Art Collections Fund put up a valiant fight to match that enormous price, but I disclose no secrets when I say that most of us believed from the beginning that they did not stand a snowflake's chance in hell of meeting it. And so it proved.
That is all very sad. We have all said so. We bemoan it; we wish it had not happened. But the Government will argue that it is perfectly fair and unquestionably legal; that it is the free play of market forces, the bracing breeze of competition; and that the auction houses are under a statutory obligation to maximise their profits in the interests of their shareholders. "This is a matter of free trade", they will add, "and we are all in favour of free trade, are we not?" But this is not free trade—it has been well described as more like a three card trick. The buyer's premium is nothing more or less than a surcharge imposed at 10 per cent. on the hammer price. So let us consider what takes place.
If you bid £1,000, and you are successful, you will pay £1,100 plus VAT on the buyer's premium. But the owner, the seller, will not get the full benefit of that £1,100. He may well lose more than 20 per cent. of it if he pays both the seller's and buyer's premium, and, in the end, trouser no more than £900. But, of course, a powerful or knowledgeable owner, a well advised or well informed owner, will already have negotiated a "no seller's premium" deal. So the only commission to the auction house is this buyer's premium, fixed at 10 per cent. And we all know, and the auctioneers have quite openly said, that this is not negotiable. In any other commercial transaction, of course, it would be. But the major auction houses have agreed between them not to vary it. This is surely creating monopoly; it is certainly not free trade.
The Government know this, and the Government have done nothing about it. We may ask why. The answer is that the Government wish to keep London 332 as the centre of the art trade, because it brings in vast revenues in invisible earnings. And so they are more or less content, unless they are roused by troublesome people like your Lordships, to turn a Nelsonian eye on the activities of the major auction houses, lest by any chance they should ruffle the feathers of these geese that lay such golden eggs. But like so much else in government policy, this is extremely shortsighted. Just like North Sea oil, the treasures of the British heritage are drying up. This cow has been milked and milked until it is almost dry. There may perhaps be a tiny blip in the immediate future when the unfortunate names at Lloyd's are forced into distress selling, and a few more of the family treasures hit the market, but that will be a very temporary amelioration of the trend, and before long there will be virtually nothing of outstanding value or importance left.
The buyer's premium has forced sale values up, to the benefit of no one except the auction houses themselves. Prices are now untouchable by our major collectors and museums. Perhaps I may give one recent example. A pair of Japanese porcelain Kakiemon vases sold this week for a record price of £550,000, against an estimate of £400,000. That immediately ruled out of contention two British museums with fine collections which desperately wanted to buy. If those vases had been sold to one of those museums under the private treaty sale rules, there can be no question but that the owner would have been better off, the museum would have had time and opportunity to raise the price and the objects would have been certain to remain in this country. The only party not to have benefited to the full would have been the auction house. I know not whether it be true, but it is certainly widely believed that auction houses have, on many occasions, actively discouraged owners from attempting private treaty sales to British museums. If it is so, it is hardly possible to see such activity as being in the national interest.
Free trade must be supported, but the stark tyranny of market forces must not be allowed to rule, unallayed, in so sensitive a matter as the disposal of our national heritage by no more noble criterion than the sordid motive of private profit. The Question before us asks what action the Government intend to take. I will tell them what action they ought to take. The buyer's premium is not in itself a matter calling for heavy primary legislation. It is essentially the latest symptom of a deep-seated malaise. What is needed is a Select Committee of your Lordships' House or of another place, or a joint committee of both Houses, to look into the totality of auctioneering practices in this country. It should investigate the desirability or undesirability of the buyer's premium; it should consider all available evidence on the matter of valuations by auction houses; and it should explore the practices governing the placing of reserves on objects for sale, to say nothing of the widely rumoured practice of taking bids off the walls, the chandeliers, the carpet or anywhere else.
There are well-known rules and regulations which apply to all other forms of business in this country. There are regulatory bodies in the City which enforce them; and woe betide now the company or the 333 businessman who wilfully contravenes them and is found out. However, the auctioneering business has no such regulatory body with teeth and power; no such investigatory body to search out irregularities; and no policing mechanism to deter the potential wrong doer. It may interest your Lordships to know that in the United States at this very moment there are moves afoot to set up exactly this kind of investigation, because it seemed to be necessary for the proper regulation of the trade in that country. A fortiori, it is necessary in this country, where London is the heart and centre of the art market of the world—and long may it remain so. A Select Committee, making recommendations, would create confidence, set standards and assure that constant vigilance which is our only prophylactic against abuse.
In the end, we must remember that this trade is unique. If we make a motor car and sell it, we can make another one. If we manufacture washing machines and sell them, there are plenty more where they came from. But the auction houses deal in far more precious ware: you cannot manufacture another Gainsborough once you have sold one; you cannot make a new Rembrandt to sell. This trade must be properly regulated.
§ 7.53 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)
My Lords, this has been an interesting debate. I have listened carefully to the points made. The noble Lord, Lord Cocks, was in very indignant form this evening. The noble Lord, Lord Strabolgi, and my noble friend Lord Crickhowell both evidently have great knowledge of the matter from their personal experience. Finally, we heard from the noble Lord, Lord Morris, who broadened the debate somewhat to encompass points which were to some extent outside the Question before the House. He ventured into certain areas and I say at once that I do not intend to follow him.
The Question to Her Majesty's Government is whether they intend to take any auction on the buyer's premium charged by auction houses. There are three strands to the issue. First, there is the question of whether the introduction of the buyer's premium by Christie's and Sotheby's in 1975 involved a collusive agreement falling within the terms of the restrictive trade practices legislation; secondly, whether Christie's and Sotheby's might have created a monopoly situation in their market and, if so, whether they were abusing that situation; and thirdly, whether the Government should act directly to ban the imposition of buyers' premiums by law. I shall take each in turn.
The buyer's premium was first introduced by Christie's and Sotheby's in 1975. The other auction houses followed suit shortly afterwards. Allegations were made that the two main auction houses had colluded in setting the premium and that an agreement existed between them which would fall under the terms of the Restrictive Trade Practices Act 1976. The Director General of Fair Trading, who is responsible for administering the restrictive trade practices legislation, investigated the matter in some depth. 334 Indeed, he did so on no fewer than three occasions: in 1976, 1979 and 1982. The two companies strongly denied the allegation of collusion and the director general, after consulting leading counsel, concluded that there was no further action which should be taken. The director general has not, I understand, received any recent complaints on the subject.
I turn now to whether Christie's and Sotheby's have or had established a monopoly by virtue of a dominant position in the market. This too was looked at by the Director General of Fair Trading when he was investigating the buyer's premium under the Restrictive Trade Practices Act. The director general concluded that no competition issues—for example, the existence of excessive profits arising from a monopoly situation or action to prevent new entrants to the market—were raised by the premium. He found no evidence to warrant formal investigation at that time under either the Fair Trading Act 1973, which covers monopolies, or the Competition Act 1980, which deals with anti-competitive practices more generally.
In recent years the Office of Fair Trading has had only one complaint about possible abuse of the dominant position in fine art auctioneering enjoyed by Sotheby's and Christie's. Among matters complained of were generally excessive prices, made higher by the publicity given to significant purchases; the practice of allowing anonymous bidding and anonymous telephone bids; bidding by auction houses on behalf of clients, or house bidding as it is sometimes called; and misrepresentation of the number of bidders for particular items by auctioneers. However, the OFT concluded in June 1990, after fully examining this representation, that nothing significantly anticompetitive was going on to justify action under competition legislation.
Finally, it has been suggested that the Government should legislate to ban the buyer's premium. However, this is not a matter in which the Government have the powers to intervene, and nor would they wish to assume them by further legislation. It is, and we believe it should remain, for the auction houses to decide how best to conduct their business. Traditionally the auction houses, and indeed organisers of auctions of all kinds and not simply the fine art houses, have recovered their costs by charging a commission to the seller, whose agent they are.
These costs will, however, vary considerably. For the organiser of an auction of second-hand cars they are likely to be small. For a dealer specialising in rare and valuable antiques, by contrast, they are likely to be considerable. Any auction house dealing in this field will need to maintain expertise in the different branches of the trade in which it deals, and such expertise is expensive. Insurance, handling, storage and security costs are all likely to be high. It is not for me either to endorse or to criticise the actions of the auction houses, but I see no objection in principle to their costs being met by the buyer as well as the seller.
The noble Lord, Lord Cocks, argued that it is wrong for the auction houses to make a charge to the buyer since they act as agents for the seller. But I do not find that argument convincing. The customer of 335 an auction house is in much the same position as the customer of a shop: he is making use of a facility and can, therefore, reasonably be expected to pay for the facility. It does not seem to me to make much difference whether he does so directly through the buyer's premium or indirectly through an element of what he buys being retained by the auction house by way of a larger commission on the sale. In any event, we see no justification for the Government to intervene in the working of the market in that area.
Auction houses are in competition with one another and with other consumer outlets for business. If they do not offer sufficiently attractive terms sellers will go elsewhere. If an auction house makes an unreasonable profit then it is likely to be undercut by its rivals. Auction houses, like any other business, charge what the market will bear. How they structure their charges is a matter for them. If auction houses were forbidden by government to impose one type of charge, they would either cover their costs by raising other types of charge or they would go out of business. It is not evident that either of those results would benefit either buyers or sellers at auctions.
The noble Lord, Lord Strabolgi, asked some questions of which he was kind enough to give me notice. He asked whether the Government had any evidence that the buyer's premium depressed prices. We have no such evidence. I should make it clear that my department does not monitor the working of the fine arts auction market. In so far as a general consumer interest in involved, that is primarily a matter for the Director General of Fair Trading, who has a duty under the Fair Trading Act to keep under review commercial activities in the United Kingdom, in particular as they may have an adverse effect on the consumer interest.
The noble Lord also asked how the responsibility for auctions was divided between the DTI and local authorities. The DTI has no formal responsibility in the field of auctions except in so far as it is ultimately responsible for the legislation affecting them. Most of that legislation is part of the general sale of goods legislation and creates civil remedies in the event, for example, of goods not conforming to their description. The enforcement of certain legislation affecting 336 auctions which creates criminal offences—for example, mock auctions and the operation of so-called rings or cartels among bidders—is the responsibility of local authority trading standards officers and the police.
The noble Lord asked finally about proposals emanating from the European Commission. There are currently no proposals to harmonise the law governing auctions in different member states and so at the moment that is a hypothetical question.
To sum up, it is the Government's view that, in the absence of evidence that the activities of auction houses fall within the scope of competition law, it must be for the market, not for the Government, to decide how they should recover the costs of providing their services.
§ Lord Morris of Castle Morris
My Lords, before the Minister sits down, did I understand him to say that his department does not monitor sales in the major auction houses? If I have understood him correctly, does any department monitor such sales? If not, why not?
§ Lord Reay
My Lords, I said that that is principally a matter for the Director General of Fair Trading, whose duty under the Fair Trading Act is to keep under review those matters in so far as they may have an adverse effect upon the consumer.