International Art Market

HL Deb 10 December 1997 vol 584 cc196-227

6.11 p.m.

Lord Hindlip: rose to call attention to the importance of London's leading position in the international art market; and to move for Papers.

The noble Lord said: My Lords, I must declare an interest as chairman of Christie's, currently the largest auction house in the world. During the 35 years that I have worked there London has had a thriving art market. It is in serious danger of losing it. But this debate is not a narrow issue about London; it is about a world market, about Europe and how Europe should seek not to disadvantage itself against the rest of the world and particularly against America. The British Art Market Federation recently published a report which has prompted my Motion. We must all welcome the Government's response to it. The Department of Trade and Industry's press release of 11th November was, as far as it goes, very encouraging.

The report shows that the British art market comprises 10,000 businesses; it employs 40,000 people; it turned over last year £2.2 billion; it contributed over £450 million in taxes and £250 million in revenue to restorers, framers, insurers, printers, shippers and other peripheral industries. It also encourages foreign visitors. It may come as a surprise to noble Lords to learn that the art market, according to the DTI's own figures, rates ahead of concerts, opera—it is a lot cheaper and less controversial—ballet and sport and is the prime reason given by visitors for coming to Britain.

The report paints, on the one hand, an encouraging picture of an industry which benefits both the cultural and economic life of the country and one in which British firms dominate the world market. On the other hand, it points out two serious threats. They are, first, VAT on the importation of works of art and its proposed increase and, secondly, the introduction of artists' resale rights, or droit de suite, as it is known in France.

VAT was discussed in your Lordships' House a year ago. But the position is worse than it was then, as the figures will show, and the time to remedy it is even shorter. When Britain joined the EEC the Government agreed to levy VAT on auctioneers' commission and on dealers' profits but not on the works of arts themselves—the so-called "margin scheme"—with a zero import tax. They recognised the global nature of the art market and the damage that restricting it with an import tax would do. However, the seventh directive on the harmonisation of VAT introduced a tax on the import of works of art into the Community. As the country with the only major art market, the United Kingdom was allowed a lower rate of 2.5 per cent. import tax, to be raised to a minimum—I stress "a minimum"—of 5 per cent. in 1999.

Since that tax was introduced, even at 2.5 per cent., imports of works of art into Britain from outside the Community have almost halved. If that trend continues, in two years' time there could be almost no imports whatsoever. While this decrease is not wholly attributable to the introduction of VAT on imports—there are other factors—it has been a major contributor to this decline in trade. The further increase to 5 per cent. will do more and irreparable damage. What is worse is that this decline comes at a time when there is a perception that Europe as a whole, and London in particular, is nothing like such a good marketplace as America.

I need hardly remind your Lordships that VAT is a complicated tax. No harmonisation will simplify it. And it is one which many of our foreign consignors do not understand. If there is a choice—and there is—where to buy or sell a work of art, we know that clients will choose the freer option: they will go where VAT does not apply. That provides a European collector with a positive incentive not to bring his purchase to Europe but to keep it at an address overseas. It seems particularly ill-advised, when all European governments are worried about the export of works of art, that they are busying themselves ensuring the export of the entire market. Our industry, like all responsible businesses, realises that government have to raise revenue, but the European Commission ought to understand that VAT on the import of works of art works against that end as less and less will be sold in Europe.

The only other country with an international market is France, but so little do the French Government understand the international nature of the market that all foreign auctioneers, including those from other EU countries, are still barred from holding sales in France. The promised legislation to open up the French market has yet again been postponed. I hope that the Minister will address what he said last year, which I know he sincerely believed. He said that harmonisation has opened up the French market. It has not.

Will the Minister also tell us whether he can use the review on the effect of the seventh directive on the art market which has to take place by the end of next year, and also our presidency of the European Union, to press for us to revert to zero import VAT which will ensure that business continues to come into Europe as a whole?

The second threat to the London market is the proposed introduction next year of artists' resale rights (droit de suite). The rate proposed by the European Commission varies from 2 to 4 per cent. Needless to say, this droit de suite does not apply either in the United States or in Switzerland. Britain again will be the biggest loser. We will be the hardest hit.

I shall not repeat the points made in your Lordships' House last year by the noble Lords, Lord Strabolgi, Lord Gillmore and Lord Freyberg. I expect that they will make such points again—and much better than I can. However, I repeat that the people who will suffer from this imposition are the smaller European dealers who do not have offices and premises in the United States through which they can negotiate sales that will probably take place in Europe.

What can the Government do to help? Last year my noble and learned friend Lord Fraser of Carmyllie, speaking from the Front Bench, said on llth December: this measure is ill-directed and the sooner it is confined to some dusty shelf for eternity the Netter".—(Official Report, 11/12/96; col. 1178.]

Sadly, it has not happened, although it clearly should.

The introduction of droit de suite is not a fait accompli. Last year the Minister said that this is perhaps a clear case for subsidiarity. The noble Lord was absolutely right and I ask him whether he will confirm and expand on that point later. Can the Minister also, in his discussions with his European partners. emphasise that there is absolutely no point in having a level playing field in Europe if no one other than Europeans wish to play on it and if the whole international art market is driven from Europe to America?

That would be a sad example of Europe's failure to consider global competitiveness when legislating for a European market. The price of failure will be that the best creations of European art will be sold outside Europe and they will never be brought back. That is surely against the interests of the whole of Europe culturally, economically and politically. To prevent that happening is a cause worth fighting for. My Lords, I beg to move for Papers.

6.22 p.m.

Lord Sandberg

My Lords, in a previous incarnation as chairman of a bank I made my maiden speech to my shareholders at their annual general meeting—and I viewed it with far less trepidation than I do this maiden speech in your Lordships' House. I was then able to promise an increased dividend, a bonus issue and an optimistic future to cover my shortcomings. Here, I can only appeal to your Lordships' tolerance. Perhaps I may say how very much I appreciate the tolerance that I have already received from your Lordships and the staff. All have treated my requests, as a new boy, for information with nothing but kindness and helpfulness. I am most grateful. I had heard of the courtesies of your Lordships' House before, but needed to experience them to appreciate them fully.

I do not pretend to have the depth of knowledge of the noble Lord, Lord Hindlip, on the position of London as an international art market, but I do have some idea of London as the repository of an enormous number of treasures of all sorts and as a traditional market place for art. When I was a student—alas, many years ago—London was not only the capital of a vast empire and a financial centre par excellence, but it was also regarded as the world's leading art market. What, for instance, in those days could compare with the British Museum, which was even mentioned in song by those eminent Americans, Ira and George Gershwin? Can anyone imagine substituting the words "The Smithsonian Institute" in that song? Who then could stand up to the London auction houses of Christies and Sotheby's? Now, I am told that New York auction rooms account for 40 per cent., and growing, of the world's art sales while London accounts for 30 per cent., and falling. We need in this country to be globally competitive and for London to regain the leadership that it has traditionally commanded.

I am afraid that I shall have to repeat some of the points already made by the noble Lord, Lord Hindlip. It seems to me that we must look carefully at two impositions on the art market. The first was levied in 1994. I refer to the introduction of VAT at 2 per cent.—not very much, one might think, but I shall try to show the negative effect that that has had. Although there is a sales tax in New York, it works quite differently from VAT and can in any case be vitiated by such entirely legal means as after-sales purchases. There is no VAT as such in New York. We shall soon have to brace ourselves for a review by the European Commission in 1998 of whether the 2; per cent. should be increased to 5 per cent. or, almost unbelievably, to an even higher percentage. Traditionally, as we all know, reviews of tax generally lead to increases.

Now we are faced with the other levy to which the noble Lord referred, droit de suite. It entitles visual artists to take a percentage every time their works are sold and on-sold while their heirs continue to have that benefit for 70 years after the death of the artist. Droit de suite to a living artist can, I suppose, be seductively argued to be something which is due to a visual artist—that is, to a painter or a sculptor. However, the fact is that such an artist is paid in full when his work is sold, as opposed to, say, an author or musician. An author has to rely on royalties on each book sold. He does not receive any more if his work is sold a second time, perhaps in a second-hand bookshop. In other creative fields, an architect does not expect to receive extra payment if the building that he has designed increases in value. In any case, I am told that in most instances the administrative cost of such a scheme is so high that very few artists—certainly, very few of the needy ones—receive any cash at all. It is estimated that in France, where droit de suite, as one might understand by its very name, is collected, the vast majority of such money is divided among only six families in the whole country.

The European Commission is now proposing a directive which would make droit de suite mandatory throughout the EU at a rate of 2 or 4 per cent. If such a levy were to exist here, it would be more advantageous for some 90 per cent. of the Impressionist market and not far short of that percentage of the value of contemporary art presently sold in London to be shipped for sale in New York or Geneva where, naturally, such a levy does not exist.

Perhaps I may give your Lordships some idea of the size of the London market and of what it is worth, not just in terms of money but of employment. It surprised me to find that nearly 40,000 people are employed in this country in the art market, which has a turnover of £2.5 billion annually, as your Lordships have already heard. Another surprise is the number of visitors to our shores who have given the art market here as one of the main reasons—frequently, the main reason—for their visit. Two years ago, in 1995, those art lovers spent nearly £3 billion in this country—not only on art, of course. I do not see any reason to think that that figure has declined. Your Lordships can imagine the benefits which the tourist industry, not to mention the Exchequer, has already gained.

But—and this is a big "but"—since the apparently small VAT rate of 2; per cent. was imposed, imports of fine art into this country have fallen by no less than 40 per cent. as people around the globe have looked to other markets for their sales and purchases. That loss has been mainly to the market in New York and, to a lesser degree, to that in Geneva. Indeed, the import of goods from Switzerland and the US because of the imposition of VAT has decreased by 65 per cent. and by 17 per cent. respectively between 1994 (when VAT was first imposed) and 1996.

Harmonisation of tax and other levies is something at which we should all aim. I am not suggesting that we in Britain should have some favoured position in Europe, but we need globally to have that overworked phrase—we have heard it several times today in your Lordships' House—a level playing field. We do not have a level playing field at the moment and I hope—I urge this on the Government—that we shall strive to ensure that the European Commission looks carefully before imposing droit de suite. Similarly, I hope that the Commission will look carefully at the question of VAT on art. I should like to see not only no increase but an abolition of this self-defeating tax before our playing field has a slope as notorious as that of Lord's. Of course, I refer to the cricket ground of the MCC, not this revered House.

I am most grateful that I have been allowed to speak on what I believe to be an important matter to this country.

6.30 p.m.

>Baroness Rawlings

My Lords, the honour falls to me from these Benches to congratulate in the name of the whole House the noble Lord, Lord Sandberg, on his maiden speech. It was outstanding by any standards. He had no need for trepidation. But this does not come as a surprise to anyone who knows the noble Lord or has studied his curriculum vitae. He is a most distinguished new Member of your Lordships' House, with a remarkable banking career and many other accomplishments behind him. He was chairman of the Hong Kong and Shanghai Banking Corporation—the largest bank in the world—and the British Bank of the Middle East. He was a member of the Hong Kong Executive Council and treasurer of the University of Hong Kong. He is a Fellow of the Royal Society of Arts, Freeman of the City of London and Liveryman of the Company of Clockmakers. In addition, he is a notable sportsman as steward and chairman of the Royal Hong Kong Jockey Club and a member of cricket clubs, including the MCC and the Surrey CCC. This is a career of extraordinary achievement which is all too evident from his excellent speech today. We all hope that he will play a prominent part in your Lordships' House and that we shall hear a great deal more from him on this and many other subjects.

Before making my modest contribution I thank my noble friend Lord Hindlip for giving your Lordships' House this timely opportunity on the eve of the British presidency to hold this debate. I too pay tribute to my noble friend for his superb and unsurpassable mastery of facts and arguments in this notoriously complex matter. I cannot but endorse his arguments. The statistics are by now well rehearsed and I declare the next few minutes to be statistics free. However, I should like to emphasise that this is not an issue which divides your Lordships' House; nor is it an issue where Britain is the odd man out, fighting to hang on to some peculiarity. It is a truly European issue, with the Commission's inclinations and the narrow national interests of some member states both conspiring to damage the whole of Europe. If Britain loses this battle the whole of Europe loses it.

As an MEP I followed the convoluted and tough negotiations on this subject in the early 1990s, so I am well aware of what a thorny issue it is. Britain succeeded in persuading the Commission and the other member states that sales of works of art required special VAT treatment by way of the margin scheme, but it failed to win the argument that imports of such goods should be exempt from VAT. The Commission's initial proposals recognised the importance of such exemption but then succumbed to fiscal purism. The compromise solution of a concessionary rate over a limited period only rather than an unlimited period was a thinly disguised climb-down.

The Commission in pursuing the completion of the internal market—very much a British initiative—is now driving harmonisation towards an ideal of clarity and consistency which does not sufficiently take into account our real interests. Other member states perceive the concessionary VAT rate applied by this country and the absence of droit de suite as discriminatory, and by pursuing their narrower interests lose sight of the larger picture. The British Art Federation, so ably chaired by Anthony Browne, has kept the vital importance to our economy of the British art market in the public eye. I am grateful to him for his relentless efforts.

The increase of VAT on imports to 5 per cent. and the introduction of droit de suite would destroy the British art market and the European art market too. The British art market is by far the largest and the only truly international one in Europe, so the effect of these rules would be to divert works of art on to the Swiss and US markets. Both still enjoy more favourable tax regimes than we do. It would also discourage the repatriation of works of arts to Europe, not just the conservation of the European cultural heritage. It would also damage London as a magnet for high spending foreign visitors.

I welcome what the Government have done so far and encourage them to persist in this line. It is in tune with the priorities of the British Presidency, which are to improve the employability of the European workforce and at the same time not impose costs on business, as the Prime Minister said last Friday. In particular, perhaps the Secretary of State can press the Commission to link its review of VAT arrangements with an impact study of droit de suite at this crucial stage of the European legislative process. We should encourage him to pursue the fight against the introduction of droit de suite by forging alliances with those who want to repeal it in their own countries and by convincing other member states that it damages artists, museums and collectors as well as the arts trade. It is a battle for the concessionary VAT rate not to he a temporary British privilege but the European norm.

The Secretary of State has taken up the challenge of making London not just a world city but the world city of the new millennium. If the Government are true to these words they will fight these battles with the utmost determination and our full backing. I therefore urge the Government to view these issues together, because in this case what is good for London is good for the country and Europe.

6.37 p.m.

Lord Naseby

My Lords, it is a little strange for a parliamentarian to confess that this is his first speech for about six years. Your Lordships will know that in my previous incarnation speeches were most definitely not in order for the post that I held. My task was to keep order and somehow to make progress. The mention of "order" causes me to reflect on the joy in your Lordships' House to find that self-regulation works. It is a joy to see no lack of action or conviction on any of the Benches but a sense of common courtesy and fair play. As a newcomer I welcome that enormously.

I believe that I am the first Lord Naseby. Naseby is a village in Northamptonshire and the site of a battle of direct relevance to the debate this evening. Your Lordships will be aware which side won. Your Lordships may also know that the wounded from all sides of that battle went to Northampton, a town that I had the privilege to represent in another place for 23 years. Noble Lords will recall that that battle was the turning point in the Civil War, probably leading directly to the rise of Cromwell to a position of power. If one looks back on that time perhaps one can argue with conviction that it was Cromwell who created the London art market. It will be recalled that there was the Sale of the Century: the Commonwealth sale, the particulars of which were prepared some three weeks after the death of King Charles I.

If one reads the recordings of that time, one will see that the logic of the sale was to a certain extent irrefutable. The king had expensive debts which legitimately someone should meet. And of course in the words of those days, which ring so true today, there was a need also for funds for public uses, at that time of the Commonwealth, or public uses for the Exchequer, as we would recognise today. The Act to allow the Commonwealth sale to go forward was passed on 26th July 1649.

No one knows what were the total proceeds of that sale, but they must have been in the order of some £50,000 at prices prevailing then. That would be the equivalent of something over £ billion today—just think of the commission and VAT on that sale! The proceeds were far, far in excess of the record sale of old masters which took place a week ago at Sotheby's which I understand amounted to £29 million.

There were many lots in that earlier sale. There were 1,500 pictures and other items. Some were negotiated, some bid for and some sold sight unseen. If one wants to see the best pictures today one has to go to Vienna, the Louvre and the Prado. They are the pictures which used to reside in this country. Thankfully, some remain in our great museums and galleries.

So much for that period. Another fillip was given to the art market by Her Majesty Queen Victoria when, to celebrate her jubilee, she said that she just wanted to see recorded in written form the history of our country; and in particular the Victoria County History of the counties of England. It is commonly known today as the VCH. I am proud to be the chairman of Northamptonshire VCH and now to be on the national committee of that organisation. I pay tribute to your Lordships' House for amending the National Heritage Bill last November so that the VCH could be eligible for lottery money. I hope that when it comes to apply for a lottery grant it will be successful.

As we have heard this evening, today's art market faces another challenge. In a previous incarnation—again, long before I was in politics—I was in advertising. I was a director of the advertising agency responsible for the advertising for one of the big four auction houses. We prepared advertisements and catalogues. I remember discussing with the directors of that house just how sensitive a market the art market can be. There is no market more sensitive to changes than the art market. Therefore that market, and the pressures it faces, should be taken extremely seriously by everyone in this land.

None of us should forget that it is not just direct exports of our manufactures which are so important; it is the money earned by way of invisible. The art market, and the work done by the many people in it, is a prime source of invisible earnings. Other noble Lords have explained in detail the threat from New York and Geneva. I shall not go into any of that detail. We face the threat of a rise from 2.5 to 5 per cent. on importation and the levy of the droit de suite.

I entered politics—in a phrase—to try to right a few wrongs. To that ambition I would now add, to prevent going wrong something that is going right. I urge Her Majesty's Government to continue to resist the proposed changes which will so adversely affect the London art market.

6.45 p.m.

Lord Strabolgi

My Lords, it is a great honour, on behalf of the whole House, to congratulate the noble Lord, Lord Naseby. on his highly interesting and brilliant maiden speech. It is one which managed to be non-controversial, in accordance with the traditions of this House. As we know, the noble Lord has had a most distinguished career in another place as the Member for Northampton, South for nearly 25 years, I think, culminating in being Chairman of Ways and Means and Deputy Speaker. I have had the pleasure of knowing the noble Lord for many years. I would like to renew my congratulations, as one of a panel of Deputy Speakers, to someone who has been the Deputy Speaker, and to express my hope that we shall hear from him on many future occasions.

I am sure that we are grateful to the noble Lord, Lord Hindlip, for tabling this important Motion for debate. As the noble Lord said. the UK art market is the most important in Europe. It is second only to New York in the rest of the world. The market in fine art and antiques brings into the Exchequer about £500 million a year in taxes and VAT. It employs about 40,000 people.

When VAT on domestic sales became necessary some years ago, it was agreed, mainly on the instigation of this country, that that would be levied only on the auctioneer's commission or the dealer's profit margin and not on the selling price. That arrangement is accepted by all. Before February 1994 there were no import taxes, as the Treasury agreed, very sensibly, that a free market was greatly to the benefit of the UK economy. We are now obliged, at the behest of our European partners, to levy VAT at 2.5 per cent. of the eventual hammer price on all art imports for auction. That is to be increased to 5 per cent., as the noble Lord, Lord Hindlip, said, after the end of June 1999.

The VAT of course is refunded if the item is bought by a foreign buyer for re-export but not if it is sold to a buyer in this country. That imposition must surely be a disincentive to EU collectors to bring back some European works of art from overseas. We hear a great deal about the drain of Europe's heritage to the rest of the world, in particular to the US, and one would have thought that any encouragement for collectors here to bring back works of art from the US would he something to be commended.

The policy assumes that a level playing field will allow our European colleagues, mainly the French, to have a better chance of competing on the American market. It will not work out like that. The result will be—I stress this in particular to my noble friend Lord Haskel who is to reply—that the EU will lose out altogether. Sales of highly important paintings will move to New York where there is no import VAT and no droit de suite. Freight costs across the Atlantic will often be less than any droit de suite levied here.

Why should a Swiss collector, for example, send his important Impressionist paintings to London or Paris when he can have them auctioned in New York or Geneva without extra taxes? I emphasise therefore that it is not a case of European countries competing against one another, but of Europe as a whole, shackled by taxes, competing against the US.

That is not all. There is an additional threat, as has been said. The European Commission has proposed a directive to make droit de suite applicable to all sales throughout the Community at rates between 2 and 4 per cent., depending upon the value of the art work.

That is a romantic, if somewhat naïve, attempt to help young artists at the beginning of their careers. I doubt whether they will get much out of it. On a £1,000 painting, which is what a young artist can expect to receive, the droit de suite of 4 per cent. will be only £40, from which will be deducted the collection costs of 40 per cent., leaving about £25.

However, when we come to the heirs of some of the greatest artists of this century, whose paintings fetch vast sums, the situation is very different. An important Cubist painting, for example, selling at about £2 million—I am sure that the noble Lord, Lord Hindlip, will agree that that is a conservative estimate for some of the important paintings of that period—will earn at 2 per cent. a droit de suite of £40,000. That is repeated each time the painting is sold during the 70-year copyright period, to the considerable further enrichment of the heirs of the artists' estates. Those families are already extremely rich. I believe that in France 75 per cent. of the droit de suite collected went to only six families.

At present, the United Kingdom does not operate this levy. I am informed that had it existed in 1995 it would have been financially more advantageous for 90 per cent. in value of the Impressionist market and 85 per cent. in value of contemporary art sold in London that year to have been shipped for sale in New York. Imports of works of art for sale here have fallen by 40 per cent. since the introduction of import VAT and there will be a further fall if that is increased to 5 per cent. Droit de suite in this country would lead to a loss of £68 million in revenue and 5,000 people could lose their jobs.

I understand that the European Commission is to conduct a review for the Council of Ministers of the VAT directive and its impact on the art market and to report before the end of next year. I should be interested to hear from my noble friend what representations have been made by the Government. This is not a party matter in any way. The previous government stood firm against these ill-considered proposals—and I speak as a staunch pro-European—and I hope that the present Government will be equally resolute.

6.53 p.m.

Lord Renton

My Lords, the noble Lord, Lord Strabolgi, has enabled me to shorten my speech by emphasising the economic and financial factors which arise. They have been so well deployed by my noble friend Lord Hindlip, the noble Lord, Lord Sandberg, and others.

I join the noble Lord, Lord Strabolgi, in his references to the maiden speech of my noble friend Lord Naseby. It is a convention of the House to congratulate maiden speakers only once, so I must not be accused of congratulating him. However, it was a pleasure to hear him refer to a former Member for Huntingdon, Oliver Cromwell. He was a Member for only a few years because he had an awful row with the burgesses of Huntingdon and was driven to become Member of Parliament for the City of Cambridge.

I was interested in the slightly provocative statement of my noble friend Lord Naseby that Cromwell created the London art market. We are all keen Royalists, but sometimes the truth must come out. Cromwell's effort was pretty disgraceful. He put up for sale the wonderful collection made by King Charles I. I am glad to say that some years later it was gradually restored, especially by that unusual king, King George IV, mainly when he was Prince Regent.

Perhaps we may consider the background to the London art market. We in London have probably the best collection of picture galleries in the world and that must attract the large number of visitors who come here. They spend money not only buying pictures and other works of art and antiques but on being in London and visiting galleries which may have to charge for admission. However, I am sure that such galleries are an attraction. In addition, we have wonderful museums. The British Museum is the most famous of its kind in the world. We also have the Natural History and Science Museums, the Imperial War Museum, the London Museum and many others. They all attract visitors from abroad and help the balance of payments.

If the London art market were without that background, surely it would not be so successful. Therefore, culturally, artistically, commercially and economically, we in Parliament should be anxious to help that market to succeed. Clear and convincing reference has been made to two main threats. Luckily, they are as yet only threats, although one has begun to have a bad effect. As regards our financial policy, the Government must be careful what they do about VAT. As regards European harmonisation, I wish to dwell on the issue because, although it appears to go wider than the debate, it is a serious matter which affects the London art market and many other factors.

I have always taken the view that the original six nations which signed the Treaty of Rome had so much cohesion and economic contact that harmonisation, financially and otherwise, could do them no harm. However, the European Union now consists of 15 nations with 11 different languages and many different cultures, if one dare use that word from this side of the House. I believe that harmonisation has become a menace and that we must be firm in our resistance to any kind of harmonisation which adversely affects our economy or our heritage. I hope that the Government will take on board what has been said about that.

I am pleased to be able to turn over four pages of my notes because the points have already been covered. In conclusion, I believe that Members of your Lordships' House deserve congratulation on the help given to our art and culture by initiating the legislation which increases its strength and protection and is a benefit to our art market. I refer in particular to the Treasure Act 1996, which applies to England, Wales and Northern Ireland. It did not apply to Scotland. The Bill was introduced by the noble Earl, Lord Perth, and we should be grateful to that Scottish nobleman for what he has done for England, Wales and Northern Ireland. He replaced the ridiculous ancient law of treasure trove, and doing so will be of great benefit. Furthermore, in 1994 we abolished the ancient defence of purchase in market overt, which was a thieves' charter. Modesty prevents me from mentioning who introduced that Bill!

The Government have a heavy responsibility to follow the advice given by your Lordships in this debate, as on so many other occasions.

6.59 p.m.

Lord Freyberg

My Lords, I too would like to thank the noble Lord, Lord Hindlip, for drawing attention to what may be the last opportunity to save the British art market by persuading our European counterparts not to impose for ideological reasons two disastrous new charges that would benefit no one but the American and the non-EU art market.

That is not melodramatic. The British art market is a huge one, worth some £2.2 billion a year, but it is at a major crossroads: hundreds of years of connoisseurship and competitive trading have been seriously eroded in just three years since the seventh directive imposed an interim charge on works of art sold in the UK. Our share of the international market is on the brink of being damaged irreparably. The evidence is compelling and extremely disquieting.

As we approach 1998, the year of our presidency of the European Commission, I urge the Government to take this opportunity to engage our EU partners in a proper dialogue to convince them that it is better to maintain London as Europe's centre of excellence in the art world rather than to destroy its dominant position simply for the sake of "harmonisation".

Already, there is alarmingly clear evidence that the 2.5 per cent. VAT imposed in 1994—half way to the proposed 5 per cent.—has driven a large number of art vendors away from London to non-EU countries with no such tax to sell their works. Since 1994, as the noble Lords, Lord Hindlip and Lord Sandberg, have pointed out, the amount of works of art imported into Britain by non-EU countries is down a staggering 40 per cent. Of the two biggest markets, imports from the US declined by 17 per cent. and imports from Switzerland by a massive 64.6 per cent.—together a drop of more than £200 million.

The European Commission is impatient that we raise our import tax to 5 per cent. forthwith or it will take legal action. Yet it knows that Britain has the only international art market in Europe—worth some 60 to 70 per cent. of the entire European art market—and that refusing to recognise the loss of trade so far risks allowing it to drop still further. It suggests too that the Commissioners have forgotten that one of the reasons for our securing an interim tax arrangement was so that its effect on the market could be monitored: if it proved as disastrous as feared, then the whole matter could be rethought. Sadly, the interim tax has had a severely detrimental effect. I hope that the Minister can confirm this evening that the Government will do all they can to stop the forced implementation of this very destructive tax from continuing. Furthermore, in the past year, major, long-established art dealers have deserted London for New York.

It is worth emphasising to the Government how much money is at stake. London, once foremost in the international art market, is now second to New York—even so, as the noble Lord, Lord Strabolgi, has said, its £2.2 billion turnover last year netted nearly £ billion in taxes. By comparison, the music industry is currently valued at £1.6 billion.

There are just a few cities in the world where the art market has developed sufficiently to accommodate the biggest sales of such major players as Sotheby's and Christie's. The two largest centres in recent years, London and New York, have up till now both been largely free of red tape. The new import tax of 1994 and the threat of more to come has changed all that. There has in the past couple of years been a significant shift to New York. The new taxes give New York an immediate edge over London.

As if that were not enough, the UK art market faces a second threat from Europe in the form of droit de suite. That seeks to award royalties to artists every time their works are resold. As America has no droit de suite and no intention of introducing it, it too would give sellers a further incentive to go to America rather than Britain and further reduce Britain's ability to compete internationally.

That proposal, put forward on 13th March 1996 and due to be implemented by 1st January 1999, entitles the author of a work of art (or his heirs) to a percentage of its price when it is resold by public auction or through an agent, regardless of whether it makes a profit. The EU wants Britain to impose that levy to eliminate differences in resale laws throughout the EU. At present droit de suite exists, at very different levels, in 11 out of 15 countries, although only eight of them enforce it. Only the UK, Ireland, Austria and the Netherlands have no form of resale rights.

The directive affects the contemporary art market, involving works by artists whose death occurred after 1927. It would, in theory, affect any work I sell over a certain price—and here I must declare an interest as a sculptor. The threshold at which the levy becomes applicable is 1,000 ecus, currently £669; this time last year 1,000 ecus were worth £757—almost £100 more, and an indication perhaps of complications to come. Thereafter it would be levied at a rate tapering from 4 per cent. to 2 per cent.

Although in principle living artists would benefit, in fact a vast proportion of droit de suite would go to the family of a handful of the best known (and chiefly dead) artists: in France, as the noble Lord, Lord Hindlip, and others have stated, 75 per cent. of the droit de suite levied goes to just six families—Picassos and Matisses and their ilk—who are already richly rewarded by a competitive art market.

Had droit de suite been in force last year, some £372.8 million worth of goods would have been subject to it and some £65 million of earnings would have been at risk. However, in reality the amount at risk is likely to be much higher. According to research carried out by two leading auction houses, approximately three-quarters of the items eligible for droit de suite were consigned by vendors outside the EU. With droit de suite, selling their work in Britain would be a less attractive prospect.

The items that attract the droit de suite levy are those that tend to attract international buyers and sellers to the UK market in general; namely, 20th century art. With the harmonisation of droit de suite levies throughout the EU, non-EU consigned business would be most at risk. If this trade were lost, it is likely that the UK market would become almost entirely a domestic one. There would also be a knock-on effect on the £2.8 billion value of expenditure by foreign visitors in the UK.

The rationale behind droit de suite is the EU's policy of favouring a high level of protection for intellectual property right holders in order to promote creativity. This directive aims to put artists on a par with authors and composers who earn royalties from their works whenever they are reprinted or played in public.

But the possession of a work of art is not a matter of performance as music is or literature may be. There is no parallel. Artists are established by their patrons. It is their willingness to put their hand in their pockets that establishes an artist's reputation. Their immediate reward is their personal and private enjoyment. They do not exhibit these works of art to their friends for a fee. They make no money on them. They may have to pay considerable sums on their conservation. They care for them and insure them. If they are of any interest, they will be asked to lend them to an exhibition for which they receive no benefit; though the exhibitors may benefit.

And when eventually for one reason or another they are sold, they may make a loss. Where is the justice in droit de suite? And if it makes a handsome profit it is most likely because the painter is world famous, like Hockney or Freud, and himself far richer than the patron who bought his early work. Hockney and Freud do not need a droit de suite. But droit de suite will be of no benefit whatsoever to the artist who throughout his lifetime sells for a modest thousand or two. Such an artist would be lucky to receive the £40 maximum on the resale of a painting for £1,000.

The levy is difficult and expensive to administer. The British art market has estimated that if droit de suite had been payable in the UK in 1996, it would have cost in the region of £2 million to collect some £9.9 million.

We want to encourage more trade not less. However, if the Government are not prepared to fight hard for the British art market and its unique position in Europe, much of the British art world, with all its peripheral benefits, will disappear for good. I beg the Government to do all they can to prevent that from happening.

7.9 p.m.

Lord Inglewood

My Lords, I must congratulate my noble friend on setting the scene for tonight's important debate by clearly identifying that the issues we are discussing are essentially European, albeit issues which have a very strong British interest. It is well known that VAT owes its origins to the Community, while intellectual property is an essential part of the single market. Of course, that includes the droit de suite.

We have already heard this evening about the relationship between the European art market and the world market and how the former is but part of the greater one. Within the European art market the trade itself is peripatetic. After all, while today London is its centre, once upon a time it was Paris and before that it was, I believe, Antwerp. I want to see London remain one of the leading centres of the art trade, in the United Kingdom, in Europe and in the world. I believe that it is in the UK's interest for it to be so. But if, on the famous level playing field, let us say, Athens, Lisbon or Helsinki were to compete more effectively, I would say "Good luck" to them.

What seems to me to be beyond argument and cannot be in Europe's interest is for the EC so to legislate that it destroys London's position in the world art market but, at the same time, simply exports the business that was previously being done by London to somewhere outside the Community altogether. That is the threat we are discussing this evening. Do we in Britain, or in Europe, have so many jobs that we can just give them away? I do not believe that that is the case. Nor, I suggest, is it a very good way to mark what could be a new flexibility in the European labour market, heralded in Amsterdam, if we kill jobs through this kind of continental dirigisme. That is exactly the kind of concern that we on these Benches have articulated on a considerable number of occasions.

Another characteristic of the global art market is, as the noble Lord, Lord Strabolgi, pointed out, that many treasures created inside Europe are now outside it, no doubt aided and abetted by the predecessors of my noble friend Lord Hindlip. The imposition of VAT on bringing them back positively discourages their return to the land of their creation, unless of course the purchaser can find a way to reclaim VAT, which is not always that easy.

I believe that that is less of an issue for us in this country than it is for many of the other countries in the Community. When it was my privilege and honour to represent this country in the Council of Culture Ministers, I very much formed the impression that their sense of loss at what they had lost, which had gone abroad, is very great. For the Community gratuitously to make it more difficult for them to repatriate some of the products of this diaspora would, I believe, be contrary to everyone's interests.

Perhaps I may also raise a slightly different point about VAT; namely, VAT and museum charges. I appreciate that the noble Lord, Lord Haskel, who will respond from the Dispatch Box for the Government, may not be able to answer my question this evening. However, I ask him to do so in due course. In the past few days the Secretary of State for Culture, Media and Sport endorsed a new plan for the British Museum which, if I have correctly read newspaper reports, involves the relaxation of the rules regarding VAT. In many cases museums wish to charge because that provides a means whereby they can reclaim VAT, which would otherwise not be possible. If it is the case that some exceptional status has been accorded to the British Museum, can the Minister clarify whether or not that status will also be accorded to the other museums in the country? I am not aginst a relaxation if that occurs, but I believe that it is important for us to be even-handed about such matters.

I turn now to droit de suite. As I mentioned, harmonisation of the system of intellectual property legislation is an essential element of the single market. Like moral rights, the droit de suite is not a right which is known to English law. But there is nothing to stop that kind of arrangement being agreed in contracts by the parties to the sale of works of art. The fact that in this country it is not suggests that its attractions are illusory rather than real. Certainly the kind of situation described so vividly by the noble Lords, Lord Strabolgi, Lord Sandberg, and Lord Freyberg, clearly suggests that that is the case: quite simply, it is the heirs of a few great artists who scoop the pond.

The more I think about it, the more capricious this concept appears to be. As has been mentioned, it is calculated by reference to sale. Therefore, if a really fine example of an artist's work is bought by a museum, then, despite its being seen by many thousands and, over time, perhaps by millions of people, not a single extra penny piece accrues to the artist or his estate. However, let us compare that situation with a less good example. Such a work of art may be acquired by someone who then decides that he does not like it. It is then sold on and, in turn, the next purchaser does not like it, so it is sold again. Each time the transaction occurs the cash register rings. It is entirely illogical. It is my personal view that the droit de suite is a piece of nonsense. It seems to me that it combines some of the characteristics of an hereditary peerage with being the beneficiary of a Jersey trust.

I am also quite clear that this is precisely the kind of issue which member states should be allowed to determine for themselves. If in a particular country in Europe it is an important component of its cultural legal arrangements that this provision be incorporated in its own domestic law, surely it is right at member state level for that to be done. That is entirely in accordance with the principle of subsidiarity and entirely in line with the principle of mutual recognition, which is at least as important an element of the single market as the principles of harmonisation. There is no European Community harmonisation of the rates of royalty, or of auctioneers' commissions or of dealers' margins, so why should there be harmonisation of this aspect of the transaction? I sincerely hope that this will not be introduced into Community legislation on a Community-wide basis. However, in that unhappy circumstance, I urge the Government to consider making a zero rate available.

I have tried to look at such matters from a European Union perspective, to show that the concerns and aspirations of the London art market are not special pleading for the UK in some effort to try to be different from everyone else, but rather that they represent a coherent and logical position for the Community as a whole, bearing in mind its own adopted economic, cultural and institutional policies and priorities.

I urge the Government to take up the issues canvassed today in the complete confidence that to do so is communautaire in both purpose and substance. They should not be deflected by those who envy and begrudge London's success and who wish to cut it down by legal means having previously been bettered in the market place.

7.17 p.m.

Lord Gillmore of Thamesfield

My Lords, I too. should like to congratulate the noble Lord, Lord Hindlip, on putting the matter before the House tonight and thank him. I warmly welcome the opportunity to return to a subject which we debated almost exactly a year ago and which is of great significance to our economy and perhaps as importantly to our cultural heritage.

I begin by declaring an interest in that I am chairman of LAPADA, the art and antiques dealers' association, which is the largest association of its kind in the UK and I believe the largest in the world. The association is a founder member of the British Art Market Federation which brings together under its wing all those who seek to promote and protect this valuable British asset. It was for the federation that the report mentioned by the noble Lord, Lord Hindlip. was recently produced.

The Motion refers specifically to the London market; but, of course, it goes well beyond London. The report that I mentioned refers to the United Kingdom as a whole. London may be the centre, but the market is nationwide. The UK attracts buyers, dealers, collectors and art lovers from all over the world because it provides a unique combination. First, as the noble Lord, Lord Renton, said, it possesses some of the greatest galleries and museums in the world. Secondly, it has an astonishing range of historic houses, lovingly maintained and open to visitors. Thirdly, in the United Kingdom there are over 750 auction houses scattered throughout the length and breadth of the kingdom. Finally, and by no means least, there are dealers across the length and breadth of the country.

That dealer community provides a unique underpinning to the market. They are indeed its bedrock. They bring immense expertise and professional skill to the trade. The members of the association which I have the honour to chair have clients all over the world with whom they deal daily and they are bound by a code of practice which gives their customers clear and dependable assurances about what they are buying.

The past 10 to 15 years have been a great success story. However, as other noble Lords have already pointed out, that is now under threat. Like the noble Lord, Lord Renton, I can turn several pages as many of the points about those threats have already been made. I shall, however, add one or two. As regards VAT I wish to re-emphasise a point which in last year's debate was not, I believe, wholly understood, and that is that we are not seeking advantage for the United Kingdom in comparison with its European partners. But we do not want to see Europe disadvantaged in relation to New York or Geneva or anywhere else. That is clearly what will happen if a 5 per cent. VAT charge becomes the European standard. Once again and, alas, not for the first time, it falls to the United Kingdom to persuade its partners and the Commission to look outward to the international context, not inward at the European Union as if it were somehow detached from the rest of the world or the only continent on the planet.

As regards droit de suite, I think it is a highly understandable, if a somewhat romantic notion, which lies behind the proposal. But the concrete experience elsewhere in Europe where droit de suite is in force shows how singularly ill conceived the proposal is. It is hugely costly to administer. Certainly 40 per cent., and perhaps as much as 60 per cent., of the levy will be lost in administrative costs before any money is distributed to anyone. We have heard of the case of France where not only is nearly three-quarters of the total levy distributed to six families, but none of them involves poor artists living in poverty in garrets à la Bohème; they are all extremely wealthy already.

I wish to mention a further threat which has not been mentioned. I do so with some trepidation. I refer to UNIDROIT, the Convention on Stolen or Illegally Exported Cultural Objects. Here the case is much more difficult to argue. No one would for a second wish to do anything to encourage a grim and deplorable trade, particularly in plundered antiquities and archaeological treasures. Those who argue against accession to the convention therefore find themselves in the unenviable position of appearing to stand firmly against motherhood and apple pie. The noble Lord, Lord Renfrew, has made frequent references to this in your Lordships' House speaking in favour of accession to that convention.

But the regrettable fact is that the UNIDROIT Convention is appallingly badly drafted and profoundly ill conceived. There is, alas, no time to go into the details. But the convention would place a heavy burden on museums and collectors as well as on the trade. The definition in the convention of what constitutes a work of art is so wide and vague as to be meaningless. The duty of due diligence is placed on the possessor. There is no protection against frivolous challenge. Were I to be in the happy position—which, alas, I am not--of owning a valuable work of art which was liable to challenge, I would make sure that I did not lend it for exhibition, for example, to any country which was a signatory to the convention.

By all means let us take every necessary step to stamp out the pillaging of sites and the obnoxious trade in stolen works of art. But let us not use the vehicle of this wrong-headed convention. I believe that Germany has announced that it will not ratify the convention. I hope that Her Majesty's Government will take a similarly robust view.

I hope that what has been said this evening does not sound too alarmist but the risks are not imaginary, they are real. Some of our auction houses are already repositioning themselves. One, I know, is considering moving its sales of porcelain to Geneva. Another is reinforcing its staff in New York in expectation that—against the background of the pressures that we have described—that is where the future market will increasingly reside.

I suppose one might ask whether this is of any great consequence. I believe that all the evidence shows that it matters. The United Kingdom economy would lose revenue and invisible earnings. Some of the grander auction houses might perhaps be able to move their focus away from London and, increasingly, to New York. But the large majority, the dealer community—the bedrock of our market, perhaps more accurately its lifeblood—does not have this option. As the noble Lord, Lord Hindlip, said at the outset, they do not have the option of upping sticks. Their livelihoods are at stake. If, little by little, they were to disappear, their skills and their knowledge would be lost and our culture would be the poorer for it.

A year ago when we debated this issue the government of the day displayed an encouraging readiness to stand firm against these kind of threats. I trust that the Minister will be able to give your Lordships the same robust assurances tonight. I hope, too, that he will be able to confirm that the Government are working hard to create alliances with those of our European partners who understand these threats as clearly as we do in the United Kingdom. The French will be particularly important in this regard. If, as French governments have said repeatedly, they attach importance to their patrimoine, then surely they must see that a 5 per cent. VAT charge on imports is likely severely to discourage collectors who wish to bring back to France French works of art bought outside the European Union. Finally, I hope we shall be assured that the United Kingdom's opposition to what is proposed by the European Commission will not be traded away as a quid for some quite unrelated quo in a deal struck in a smoke filled Commission conference room in the small hours of the morning.

7.27 p.m.

Lord Astor of Hever

My Lords, I congratulate my noble friend Lord Hindlip on sponsoring this important debate. I much look forward to hearing the winding up speech of my noble friend Lord Luke when he speaks from the Dispatch Box.

I have spoken in this House in the past about the London art market and do so again tonight with a sense of conviction. What is at risk is our ability to hold on to the position this country has achieved within the past generation or so as the foremost art market in Europe. In so many realms of our national life we have found ourselves in a diminished role, for various reasons including, of course, our relatively reduced economic strength. But in a number of ways we have achieved a more prominent position, of which the world of art is certainly one.

A multiplier effect comes into operation here. The creation and exchange of works of art generates other markets. There is a buzz of activity. People are attracted as bees to honey. Not only does the art market provide employment for tens of thousands and bring overseas visitors here spending billions, but the Exchequer benefits directly through tax on a huge scale. All this is threatened by what I can describe only as a dog-in-the-manger attitude of other European countries who resent the success the UK has achieved in this market. They want to deprive us of the financial advantages we now enjoy and which lie at the heart of our success. If they succeed, the result will be not that other countries are able to secure the market that we have hitherto enjoyed, but that the goods are sold outside the European Union, either in the US or Switzerland. Indeed, this is already happening, such is the impact of the threats.

One of the threats is, of course, possible VAT harmonisation. Before the introduction of the single European market, no VAT was levied on works of art imported into the UK. Already, since the introduction in 1995 of the 2.5 per cent. VAT, imports of art from outside the EU have fallen by 40 per cent. So it is not difficult to imagine how serious would be the impact of a doubling of this rate.

However, the European Commission is going to carry out a review of the impact of VAT on the art market. It is essential that Her Majesty's Government take up the cudgels on behalf of the British art trade.

We have heard that the other area which presents a risk to the British art market is droit de suite. The objective of that levy was to help impoverished artists or their heirs. But as things have worked out, it is mainly the very successful who have benefited—for instance, Picasso and his heirs. In France, where the levy was first introduced in 1920, three-quarters of all the money distributed in this way was paid to the families of only six artists, as the noble Lord, Lord Sandberg, said in his excellent maiden speech. But penniless painters and their children are unrewarded.

At the present time 11 of the 15 member states of the European Union have legislation providing for this levy, which varies between countries. It is worth noting that in Italy droit de suite was introduced in 1941 but none has ever been collected.

The European Commission proposal seems to be another example where the attempt at uniformity, apparently for the sake of creating a level playing field for the art market, will have the effect of driving goods out of the EU for sale elsewhere. It has recently been estimated that on 1995 figures the droit de suite alone would have made New York a more profitable place to sell 90 per cent. of the Impressionist market by value and 85 per cent. of the contemporary art market.

In resisting the introduction of droit de suite, British based auction houses consider, justifiably, that this is an instance where the much trumpeted principle of subsidiarity should be applied. I strongly urge Her Majesty's Government to resist any attempt to introduce droit de suite into this country.

7.32 p.m.

Lord Pearson of Rannoch

My Lords, apart from the pleasure of listening to two such excellent maiden speeches, it has been a depressing experience to attend your Lordships' debate this evening. All the fears expressed in our debate almost exactly a year ago on 11th December 1996 have been repeated. Alas, it falls to me to continue the gloom by repeating some of what I said a year ago, to the general effect that there may be no way the London art market can escape from these destructive directives while the United Kingdom continues to be bound by the Treaty of Rome. I fear that the battle into which my noble friend Lord Hindlip so gallantly invites us to follow him may well be lost before we start.

Likewise, other noble Lords who have urged the Minister to protect our interests in Brussels may be asking the Government to do something which they are no longer capable of doing. After all, how often do we hear a British Government of one shade or another say that they will fight for this, that or the other in Brussels when in truth they know that they have no chance of succeeding?

I say that because under the Treaty of Rome the London art market, like all other British commercial and industrial enterprises, is in the end governed by European single market legislation, which is in turn ruled by the dreaded qualified majority vote. I am aware that the Conservative Government pretended that the single market was one of their greatest achievements in Europe; but that is a view which some of us have never shared.

To understand why the qualified majority vote (QMV) is so destructive, one has to understand how it works. I know that I have wearied your Lordships with an explanation on several occasions under the previous government, but this is the first time I have done so under the new Labour Government, who appear to believe that they can avoid the effects of QMV by a new charm offensive in Brussels. I submit that the future of the London art market is an excellent test as to whether that charm is working.

There are 87 qualified majority votes among the 15 member nations of the EC. France, Germany, Italy and ourselves have 10 votes each; Spain has eight; Belgium, Greece, Holland and Portugal have five each; Austria and Sweden have four each; Denmark, Finland and Ireland have three each; and Luxembourg has two. Of those 87 votes, 62 are required to carry a new initiative and 26 are required to block one.

As I understand it, and I may be wrong, if we want to avoid the effects of the seventh VAT directive, that would be a new initiative because we have already foolishly agreed to be bound by it. Thus 62 votes would be required to carry the new initiative and reverse the existing directive. On the other hand, if we wish to avoid the droit de suite legislation, in whatever form it finally emerges from Brussels, we would need to muster 26 votes to block its imposition upon us because we have not yet agreed to accept it.

So my first question to the noble Lord, Lord Haskel—he has the unfortunate task of answering for the Government this evening—is how he sees those qualified majority votes being cast on these directives when the British Government press their case, as I assume they will. Are the Government confident, given their brave new policy in Europe, of getting even the 16 votes that we need, plus 10 of our own, to block the droit de suite directive? I have heard a rumour that France may be moving our way on this issue, which would of course be excellent news. Can the Minister confirm this?

It is an interesting coincidence that the noble Lord, Lord Haskel, answered our debate a year ago for the Labour Party, then in Opposition, and that he is doing so tonight for the Government. I hope that he will be more robust in defence of British interest tonight than he was then. He said at col. 1 173 of Hansard: I find it difficult to understand why our partners in Europe should agree to our having a competitive advantage so far as concerns VAT". I trust that the speeches of my noble friend Lord Hindlip and others this evening have enlightened the noble Lord in that respect. In case they have not done so, perhaps I may ask the noble Lord the question that I often put to the previous Conservative Government. I put it a year ago to my noble and learned friend Lord Fraser of Carmyllie who was answering for the Conservative Government at the time. The question was, and still is: what is the point of being forced to play on the level playing field of Europe if its rules force us to lose out to our competitors outside the Community or otherwise damage British businesses? I shall be most grateful for a reply from the new Labour Government to this question because I never succeeded in obtaining one from the Conservatives.

The wider problem is that the London art market is not the only victim of single market legislation and of our adherence to the Treaty of Rome. There are dozens of other British interests which are threatened, or already damaged. by Euro-legislation about which we can do nothing because we have not been able to muster the votes to protect us. Those interests include, to name but a few, our fishermen, waste disposal, slaughtermen, the working week, herbal medicines, dairy farmers, cheese makers, food transporters, whisky distillers, pheasant shooting, buses, market gardeners, paper rounds and takeovers, not to mention the excellent lavatory designed by Thomas Crapper. I could name more, but the principle is always the same. For one misguided reason or another, the bureaucratic corporatist monster which has been created by the Treaty of Rome disgorges edicts which are destructive to our national interest but which we are powerless to resist. It is of course unfortunate for many of those other interests that they may not be so well represented in this House as is the London art market. But that merely makes this debate all the more important.

I conclude by putting my third and final question to the Minister, which I often put to the previous administration without the benefit of a satisfactory answer. In view of the predicament of the London art market which we have debated this evening and that of so many other British interests, has the time not come for the Government to commission an independent cost-benefit analysis of the United Kingdom's membership of the European Union?

Whatever the result of that analysis, I would pre-empt any reply that the Minister might make by saying that if we left the Treaty of Rome we would of course not lose access to its single market because we could easily negotiate a bilateral arrangement such as that enjoyed by Norway and Switzerland (the latter of which, I might add, is clearly going to be a beneficiary of the demise of the London art market if it occurs).

I hope that the Minister will not reply. as the previous administration was prone to do, that such an analysis is not necessary because the benefits of our membership of the European Union are so obvious and self-evident. I submit that those benefits—

Lord Inglewood

My Lords, will the noble Lord give way? For the avoidance of doubt, I should be grateful if the noble Lord will tell me: does he want to see the collapse of the London art market in order to vindicate his prophecy of doom?

Lord Pearson of Rannoch

My Lords. I hope that my prophecy of doom will be disproved by the present Government, who will be successful in their negotiations with the European Community.

Perhaps I may return to my conclusion, which was to submit that the supposed benefits, by which my noble friend Lord Inglewood is clearly convinced, of our membership of the European Union must be far from obvious to those who earn their living in the British art market and to very many others besides.

7.42 p.m.

Lord Jacobs

My Lords, in responding on behalf of the Liberal Democrats, and as a very new Member of your Lordships' House, I thought it desirable to do a little research. I came across the debate that took place just a year ago, on 1 1 th December 1996. I read its approximately 9,000 words with interest. I presumed, because the nature of the subject for debate had been changed this time, perhaps the topics had changed slightly too—which shows that I have a great deal to learn.

There is a need for other subjects to be included as we are talking about the international art market as it affects Great Britain. I looked up the remarks of Liberal Democrats in the debate last year—and saw that they were not there! I therefore very much welcome the noble Lord, Lord Sandberg. It is to he hoped that if debates on this subject occur on other occasions, both he and I will be able to represent our party.

I must declare a past interest, in so far as I have a daughter who used to be quite well known as a contemporary art dealer in London. However, she is not a dealer any longer. She is studying to be a psychotherapist—which probably says a great deal about the nature of the art market. I recognise the major contribution that commercial galleries, auction houses and museums of art play in drawing visitors to London from all over the world.

The noble Lord, Lord Renton, referred to the excellent number of galleries that we have, particularly in London. The noble Lord did not mention one major gallery that does not presently exist in London. Here I declare a current interest, for I am a supporter and fund-raiser for the new Tate museum of modern art being constructed at Bankside, on the south side of the River Thames, opposite St. Paul's cathedral. Perhaps I may immodestly say on behalf of that museum that when it is completed it will be among the three or four greatest modern museums in the world. It is a millennium project costing £130 million, to which the Millennium Fund has contributed £50 million. There remains just £25 million to be raised. The project is proceeding very well.

There are a number of other major projects in London, including the Royal Opera House, the National Theatre and the British Museum, all of which are associated with lottery funds. There is, however, only one entirely new project being added to the London cultural scene; namely, the Tate museum. I believe it will be one of the big new tourist draws for London, and for the whole of Great Britain.

Everything is proceeding well with the project. There is just one problem. The lottery fund is now anticipated to generate nearly £10 billion, of which at least £4 billion will be for capital projects. Each one of those capital projects, which include the new Tate at Bankside, will incur substantial operating costs such as staffing, maintenance, depreciation and so on. Yet the groups funding such capital projects, including the Arts Council, the Heritage lottery fund and the Millennium Commission, say that they are not responsible for helping with the operating costs. So when all these projects come to fruition, we can be certain that at least £200 million a year will be required to cover the operating costs after deduction of the revenues they will receive from services that they provide.

In the case of the Tate at Bankside there will be an operating deficit. after taking into account restaurant and other revenues, of at least £5 million a year. I do not believe that it is the Government's strategy to force all museums to charge admission. I know that the subject is presently being discussed. I believe, therefore, that a serious mistake has been made in deciding that lottery funds cannot contribute towards endowment funds towards the maintenance and operating costs of these new projects. I believe that as much as £2 billion of the £10 billion that will be raised should be provided towards endowment funds.

Surprisingly, the rules do not prevent the provision of endowment funds. They are permitted, and in one case a small endowment fund exists. As an accountant and former industrialist, I find it inconceivable to engage in a major capital project without carefully examining how the operating costs are to be financed. I favour endowment funds; the only alternative would be if the Government would give £200 million in additional funding to the Arts Council for redistribution. At present, that is unlikely.

I now turn to the question of VAT harmonisation. I have learnt a lot about it, both from reading the debate last time and from hearing most of the same speakers making slightly different speeches in this debate. I feel that I have at least understood the subject and that the Government—even though not in government last time—will be equally familiar with it.

As the 13th speaker in a debate such as this on quite a narrow range of subjects, it is almost impossible to say anything entirely new. However, the key issue in relation to harmonisation where VAT is concerned is that the other countries in Europe have examined the situation and do not come to the conclusion that they have a great deal to lose. Therefore, to them, harmonisation is quite a nice idea. It is only when we examine the issue in this country that we recognise exactly what we have to lose. Reference has been made to Geneva and Switzerland; but in terms of art sales in the international market they do not rate very highly. The international art market is based on London and New York. I have spent quite a large amount of time in the United States. I recognise that the market is steadily moving towards New York and that this country is losing it. The other countries do not have a vested interest here; therefore it is not surprising that they do not move to try to change the structure.

Then there is droit de suite harmonisation. The initial idea is quite attractive. I shall not explain it again since it was twice very well explained during the debate. But one point has been missed. When well-known artists produce very good paintings, they often try to ensure that those paintings go to museums, often at a favourable price. They will probably never be resold. As I believe one noble Lord mentioned earlier, the lesser paintings are in many cases the ones that may be resold. The initial idea was a good one but its practical application is completely hopeless. I therefore strongly urge the Government to endeavour to secure change to both the VAT harmonisation plan with regard to art and the artists' royalty plan, which will also very much damage our interests.

7.50 p.m.

Lord Luke

My Lords, I should like to thank my noble friend Lord Hindlip for initiating this debate and add my congratulations to those already offered to the noble Lord, Lord Sandberg, and my noble friend Lord Naseby. Their maiden speeches were excellent and we look forward to hearing the noble Lords again. I was going to say something about King Charles I but it has already been said by my noble friend Lord Renton.

I know how difficult it can be to speak second to last in a debate. Nearly all my arguments have been made far better than I could make them; however, I shall persist. I must declare an interest. I have for the past 25 years dealt in 19th century watercolours. I have paid VAT on my margins, though I no longer do so. I am not, however, at present studying to be a psychotherapist. The levels at which I buy and sell my wares are rather different from those of the works of art which we have been discussing today. But even at my level the trickle-down effect will sooner or later operate as more and more specialist dealers decide to move their core businesses to New York and Geneva.

The most important immediate reason for this debate, as the noble Lord, Lord Gillmore, said, is the report of the British Art Market Federation for 1997, published last month. That document shows beyond argument that the predicted drop in imports of arts and antiques from non-EEC countries to the UK in the period since the introduction of the VAT levy of 2.5 per cent in 1994 is 40 per cent. That is extremely significant and disquieting. As many noble Lords have said, a levy of 5 per cent. will be even worse. As the noble Lord, Lord Sandberg, said, it could be even higher than 5 per cent. As we heard from my noble friend Lord Hindlip and from the noble Lord, Lord Strabolgi, we are talking about a global market, not a European market. Europe is involved, but the market is a global one. The European Commission seems to be only too happy to destroy the Community's participation in the world art market because other countries which do not currently share London's position have not appreciated the real implication of what is proposed. It is useless to talk about level playing fields when three-quarters of the players are not even playing the same game.

Those who have the resources to buy and sell great art operate internationally. They have no loyalty in conducting their business other than to buy and sell in circumstances most favourable to themselves. And why not? They are, however, increasingly unlikely to keep their collections in Britain, with all that that means in terms of works of art leaving the country; nor are they likely to keep them anywhere in Europe. The great auction houses and major dealers have, as it were, gone international and can absorb the changes of focus that that entails. It is the lesser houses and the great generality of dealers who will be at an ever-increasing risk of losing their businesses. I believe that, if we are not very careful, this decline will eventually destroy Britain's strength in the market.

Mr. Ian Taylor, Minister for Science and Technology in the previous government, said to the House of Commons European Standing Committee in January this year: The proposals for droit de suite are not sensible; if harmonisation were needed it would be better merely to withdraw artists' resale rights across the European Union—that would give each country an opportunity to decide what was best for it". He went on to say: This measure will not lead to a significant, nor even a material improvement in the well-being of artists. I believe that that sums up a situation that has not changed since then. The noble Lord, Lord Freyberg, said that there is at present no droit de suite operating in the United States. I believe that it was introduced into California a few years ago and then withdrawn as unworkable. I do not know what lesson we draw from that.

New taxes mean more bureaucracy, thus adding even more to the perception of the foreign buyer or seller—because that is what he goes by—that it would be less hassle, as well as better value for money, to go elsewhere.

A number of noble Lords said that, with the presidency of the Community, the Government's chance will come to change the situation. For instance, will the Government follow up the request for a proper cost-benefit analysis by the European Commission of the effects of droit de suite, not only of the possible benefits which might accrue to artists but also of the costs of collecting the levy? What plans have the Government for persuading the French to honour their pledge to open their art market to other members of the Community? Surely they are breaking Community law by not doing so? What sanction is available to persuade them? When will the review of the impact of the seventh directive. to which the Commission is committed, start to take evidence? Will the Government try to accelerate the start of that review so that they may be in a position to influence its conduct during their presidency? Is there in fact anything that the Government can do about droit de suite coming to this country, other than to discourage all attempts to impose it upon us? Subsidiarity has been mentioned; I believe that this is an excellent case for the application of subsidiarity.

There are many questions to be answered. This sorry tale is a remarkable example of how a market, founded by great effort and enterprise on a completely free and open trade principle, is being slowly but surely strangled by impositions of unnecessary and counter-productive tax and bureaucracy. As so many noble Lords have said, no one gains except the United States and Switzerland. The United Kingdom loses all the way along the line. The European Community looks extremely foolish as it cuts off the British nose only to spite its communal face. I look forward to hearing what the Minister has to say.

7.59 p.m.

Lord Haskel

My Lords, I am grateful to all noble Lords for their contributions to the debate. I should particularly like to congratulate the maiden speakers and also the noble Lord, Lord Jacobs, since I believe that this was the first time that he has spoken from his party's Front Bench.

Yes, it is a year tomorrow since your Lordships last addressed this issue. When I then spoke I was at the Dispatch Box on the opposite side of the Chamber. Words are often a hostage to fortune, but, in spite of the selective quotation made by the noble Lord, Lord Pearson, my views have not changed.

It is timely to return to this issue. The current situation, as I understand it, is that a revised proposal for a directive to harmonise artists' resale rights is currently the subject of inter-services consultations within the Commission and will be considered by the Chefs de Cabinet in around a fortnight.

I congratulate the noble Lord, Lord Hindlip, on his timing. It is a current issue. He told us that he has been in the art industry for 35 years. He knows the realities of the market place, as do many other noble Lords who have spoken. I can assure him that the Government will reflect carefully on what he and other noble Lords said today. We will take the matter seriously, as the noble Lord, Lord Naseby, urged. I hope that others elsewhere will too.

Art is not often thought of as an industry; but it is, and an important one. It makes a significant contribution to the United Kingdom economy and many noble Lords this evening gave us the figures. It is a highly successful industry and an example of what can be achieved given the right skills, imagination, management, investment and willingness to take risks. The Government are determined to see that that achievement is not undermined. Though we have only been in office for seven months, Ministers have already met representatives of the art trade on several occasions. We understand their concerns. We shall maintain a regular dialogue with them.

Though there has been a change of government, the United Kingdom's policy has not changed. This Government, like the last one, is opposed to the introduction of artists' resale right. The reason is quite simple. Introduction of the right would damage our art market and would bring little or no benefit to the majority of British artists. In our concern for the art market, we must not forget the artists. As the noble Lord, Lord Freyberg, reminded us, they are the seedcorn. Traders need artists and artists need traders. They depend upon each other. The Government want to encourage artists, but applying a uniform royalty rate throughout Europe is not the right way to do it.

Despite the absence of artists' resale right, we have one of the largest—if not the largest—community of artists in the European Union. It is a thriving community. British artists benefit directly from the success of our art market, particularly from the influx of wealthy people and organisations, as other noble Lords explained. Those visitors come to our auction houses, galleries and dealers and stay in our hotels. They bring a lot of business to the United Kingdom and are always on the look-out for works of up-and-coming artists.

The Government will not name the artists of tomorrow. Whoever they are, they are benefiting from a lively and prosperous art market. The Government believe that the best way of helping British artists is not to introduce artists' resale right, but to ensure that our art market prospers and with it our artists. The way in which society looks after its artists is a social or cultural matter. The art market is an economic matter. We should not confuse the two. But what is good for the market is good for the artist also.

I say to the noble Lord, Lord Jacobs, and other noble Lords that it is important to record that we do a considerable amount to help artists even though we do not have the "droit de suite". We set up the lottery-funded endowment for science, technology and the arts. We should not forget the funds distributed by the Arts Council. The Government are committed to encouraging links between the world of business and the arts. The Government's National Heritage Pairing Scheme is a strong force in forging such links. We encourage a wide range of imaginative and valuable partnerships between the private sector and the arts. We do not ignore artists; we do what we can to help them in spite of not having the droit de suite.

I come back to the central issue which concerns your Lordships. The London art market is unlike any other in Europe. It is the Community's only truly international art market. Many of the works bought and sold here are ones traded internationally. If they were not sold here they would be sold in New York. Investors sell where they get the best returns. They will not come to London and Paris—or Frankfurt for that matter—if it costs them more to sell here than elsewhere.

London is a successful international art market not only because of the absence of artists' resale right, but because of its history, reputation and expertise. Yet, as other noble Lords said, our share of world auction sales is already beginning to slip and the United States seems to be the beneficiary. That is a matter of concern.

I agree with other noble Lords that the proposal on artists' resale right will result in trade switching from London, not to other European capitals, but to New York, Switzerland or Hong Kong and other places where the right does not exist. The Department of Trade and Industry conducted a study and estimated that up to 5,000 jobs and earnings of up to £68 million per annum in dealers' and auctioneers' fees would be lost to our competitors.

The proposal is an unfortunate example of a single market measure for which a good case has not been made out. It completely fails to recognise the global nature of the art business. I agree with the noble Baroness, Lady Rawlings, and my noble friend Lord Strabolgi, that it is a European issue. Levelling the playing field in Europe is pointless if all it does is make the Community's art market less competitive internationally.

I say to the noble Lord, Lord Pearson, that we are committed to completion of the single market. The internal market has a valuable part to play in improving competitiveness. The Government will support sensible harmonisation to achieve that. The noble Baroness, Lady Rawlings, reminded us that there is a need to ensure that the proposals for completing the internal market bring genuine benefit, and we agree with that. In this case, harmonisation will make the art industry less competitive.

I am not surprised that the noble Lord, Lord Pearson, received no reply to his question from the previous government; it is a pointless question. However, he asked about qualified majority votes and France's position. There is not a blocking minority at the moment. We have 10 votes; the Netherlands have five and Ireland three. They too support our proposal and that brings our total to 18—eight short of a blocking minority. If France comes in—it has 10 votes—there would be a blocking minority. However, France has said that it favours harmonisation and is currently considering what the appropriate royalty should be. There is still a lot to play for. The DTI study has been translated into the languages of other member states. It may cause them to question what the consequences for them will be. The Government will not throw in the sponge.

Lord Pearson of Rannoch

My Lords, I am grateful to the Minister for giving me such a full answer. However, when he says that my question as to whether or not we should be in the European Union is pointless, will he admit that, if we were not in the European Union, we would not be taking part in this debate tonight?

Lord Haskel

My Lords, I do not want to argue with the noble Lord about the European Union. Again about a year ago we had a long debate on the subject and I refer him to that debate.

The United Kingdom is not seeking any special advantages. We are not afraid of the level playing field. We want to see the Community promoted as a centre of the art trade rather than losing business to third countries. My noble friend Lord Strabolgi asked about the review. The Government will be concerned to see that the review is realistic and as wide-ranging as necessary. They will seek to ensure that the particular interests of the UK art market as well as the European Community art market in general are properly represented. That will be the case whether the review starts during the United Kingdom's presidency or later.

The noble Lord, Lord Gillmore, asked whether the Government are working hard to establish alliances. Yes, we are, but at the moment a majority of member states favour harmonisation of the droit de suite. We are working very hard to persuade them to change their minds.

About a year ago, when we had our debate, fears were expressed about the impact of the VAT changes. We can still only speculate on this, although the Government are aware that anxiety in the art trade is growing as we get nearer to June 1999, which is when the rules will have to change. The noble Lords, Lord Hindlip and Lord Sandberg, showed their concern and gave the figures. They asked whether we can use the review of the seventh VAT directive to press for a zero rate and also whether we will use our presidency in that way. I believe the noble Lord, Lord Inglewood, asked me about that as well. While the question of a zero rate of VAT for imported works of art may well arise during the review, it may not command much support from other member states. Our major concern will be to attempt to persuade other member states and the European Commission of the Community-wide benefits of the UK's derogated rate of 2.5 per cent. rather than the minimum rate of 5 per cent. set in the directive. That will be the case whether the review starts now or later.

Lord Inglewood

My Lords, I was specifically addressing my remarks to the rate that might be applied on droit de suite. I appreciate that it is not part of the Commission's current proposals that the rate on droit de suite should be zero. However, does the Minister agree that, if it were decided that there should be droit de suite across the entire Community, it is at least a theoretical possibility that the rate at the bottom end could be zero? Therefore, if that is appropriate, does he not agree that it might provide an additional argument for the Government in resisting this pernicious proposal?

Lord Haskel

My Lords, I shall come to the question of a zero rate for droit de suite in a moment. The point I wish to make is that the artists' resale right and import VAT cannot be considered separately. It is the combined effect which is important. We need to know what effect both will have on competitiveness. New measures should not be introduced without knowing the impact.

The DTI has studied the impact of the resale right on the United Kingdom. This study has been made available to the Commission, but a study of equal depth needs to be made for the Community as a whole. The Government will continue to seek to persuade other member states and the Commission of the importance of this. Decisions must be taken only in full knowledge of the facts. Member states must understand the risks involved.

The warnings contained in the study and in the DTI's study must not, and cannot, be ignored. We shall ask the Community to pause and reflect. It must consider what impact the resale right proposal will have. The Community must ask itself whether this is really what it wants. We shall point out that the United States has already rejected the idea of introducing the resale right. We shall point out that the Swiss have rejected it too, precisely because they want to build up their international art market. Perhaps it would be better, as the noble Lord, Lord Inglewood suggested, to abolish the right altogether. That would level the playing field in Europe with the international playing field. Europe cannot isolate itself from global competition. Nevertheless, the Government would not wish to impose abolition, or any other solution, on our European partners. We respect their culture and traditions. Some countries have had the right for a long time. They attach great importance to it. If they want to continue with the right because it suits them, it is not for us to say that they should not have it.

Equally, the Government see no reason for the United Kingdom to be obliged to introduce the right, simply because others have chosen to do so in the past and want to keep it. Our circumstances are different. As the draftsmen of the Berne Convention well knew, artists' resale right is an area of copyright which, for good reason, is best left for individual countries to decide for themselves in accordance with their circumstances. That is why I think this is a clear case where subsidiarity should apply.

As I said at the beginning, a new proposal is expected shortly. It will take account of proposals from the European Parliament to amend the Commission's original one. The Government will want to look at this very carefully. We shall want to see three things: whether it is accompanied by a fiche d'impact, or, for the benefit of the noble Lord, Lord Pearson, in English, a cost benefit analysis; whether it addresses the issue of international competitiveness; and what changes have been made to avoid damage to the United Kingdom's art market.

Your Lordships will be aware of the Government's positive and constructive attitude towards Europe. There is a better atmosphere and a greater spirit of trust. Our approach to negotiations on artists' resale right will be to explain to our European partners and to the Commission why the Government consider the resale proposal to be so damaging, and why what is proposed is not the right solution for Europe as a whole. I can assure noble Lords that we are in negotiations and we are doing all we can to persuade others of the strength of our argument.

Lord Strabolgi

My Lords, the noble Lord is coming towards the end of his allotted time. He has based almost the whole of his speech on the droit de suite. Will he now tell the House what the Government are intending to do about import VAT, which was the other half of this debate and equally important?

Lord Haskel

My Lords, the European Commission is specifically committed to reporting the conclusions of its re-examination of the relevant provisions of the seventh VAT directive on the international competitiveness of the Community's art market to the Council of Ministers by 31st December 1998. It has not yet indicated when the review will begin or how it may be conducted. The Government will be concerned to see that the review is as realistic and as wide-ranging as necessary and will seek to ensure that the particular interests of the UK art market as well as the European Community art market in general are properly represented. That will be the case whenever the review starts. We are waiting for the review to take place. That will be our position. We shall also want to discuss the British Art Market Federation's study with the Commission and also the DTI's own studies which have now been translated into other member states' languages. It is important for other member states and the Commission to understand our position. We shall aim to ensure that decisions are not taken which the Community will later come to regret.

If there are other questions which I have not answered, I shall write to noble Lords. I thank all those who have participated in the debate. Noble Lords can rest assured that the Government will be tireless in speaking up for Britain in this matter.

8.20 p.m.

Lord Hindlip

My Lords, I would like to add my congratulations to the noble Lord, Lord Sandberg, and to my noble friend Lord Naseby for their excellent maiden speeches. I would like to add also a special word of welcome to my noble friend. I was born in the neighbouring village of Hazelbeach. Perhaps I may tell him that there is a published catalogue of the disastrous Cromwell sale. I shall try to acquire a copy for him. I wish particularly to thank my noble friend Lady Rawlings for her kind remarks. It was also a joy to listen to the noble Lord, Lord Strabolgi.

But I hope that the obvious charm with which the noble Lord, Lord Haskel, has addressed this debate can be extended to his discussions in Europe. I say one thing to him: will he please prove the noble Lord, Lord Pearson, wrong? I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.