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Sir Michael Spicer (West Worcestershire): Will my right hon. Friend give way?

Mr. Heathcoat-Amory: If my hon. Friend will forgive me, I will not give way. I am trying to answer some points made in the debate. We only have a few minutes, and we want to hear from the Minister also.

It is to the member states that we ought to turn to defend national interests. That brings to the fore another baffling aspect of this whole affair. Why is the German presidency bringing forward the measure? Is it stupidity? Does Germany not realise the damage that will be done

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to employment and the interests of the European Union? I do not think so. The matter has been exhaustively discussed in working parties in Brussels, and I know from previous debates that the Government are fully engaged in the matter.

To be fair, I was impressed by a debate that we had last July when the Minister of State, Department of Trade and Industry, the hon. Member for Makerfield(Mr. McCartney), showed a thorough grasp of the issue and acknowledged that great damage would be done. He estimated that if the measure went ahead, we could lose earnings of up to £65 million a year, resulting in 5,000 job losses. He pledged to fight the measures. I am grateful for the way in which the Government have become engaged in the matter. It has been explained to the Council of Ministers exactly what is at stake, and there are many academic studies to back up our view.

I do not want to be misunderstood in what I am about to say. I admire modern Germany, and I am very slow to question the motives of either the European Commission or other member states. However, as they are proceeding in full knowledge of the damage that will be caused--which has been backed up by countless studies and many debates--I must conclude that this is a calculated attempt to damage an important British industry. If that is not the case, let us have an explanation. There may be resentment or jealousy that the British art market, centred in London, is somehow not fully European and perhaps gets its trade from a global market--perhaps too much from north America. That is the only explanation.

If that is true, the Council of Ministers, in two weeks' time, will be engaging in an act of quite unnecessary industrial vandalism. For the German Government to bring forward this measure under their presidency is curious. We know that the German Government were elected on a pledge to reduce German unemployment by 1 million. Sadly, that has not happened--German unemployment has risen to 4.5 million. The measure will not create jobs in Germany, but it will destroy them elsewhere in the EU. How can an organisation and a member state be proceeding with a measure that will cost European jobs, as has been proved in this short debate?

The matter is extremely urgent. The Internal Market Council meets on 25 February. As my hon. Friend the Member for North Wiltshire (Mr. Gray) said, now is the time to take a stand. The day after that Council meeting, the Council of Ministers meets in the form of a European Council, when all heads of state and all Prime Ministers will meet to discuss the European budget. Let the Prime Minister of this country use this as an example of the European Union damaging itself by allowing the ideology of tax harmonisation to overcome common sense and the commercial interests of member states.

I ask the Minister to request formally the Internal Market Council to postpone by one day its deliberations so that the matter can be raised at that higher forum. I believe that this matter should be the subject of a Luxembourg compromise. As the House knows, this is a mechanism whereby a measure brought forward under majority voting can nevertheless be subject to a national veto where important national interests are at stake. The mechanism has been invoked by other countries, including France. It should be invoked in this case.

The Prime Minister has said that he has influence in Europe. Let us see--let us use this as a test case of that influence. Let him prove it. The House is in no doubt

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that this is an important national asset. The threat is real, immediate and serious and we want something done about it.

10.47 am

The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells): May I congratulate the right hon. Member for Cities of London and Westminster (Mr. Brooke) on bringing this important matter to the House once again? Let me say at the outset that I have not heard a single word with which I disagree.

The point made by the right hon. Member for Wells (Mr. Heathcoat-Amory) is very important. I would like to think that the decision is not motivated by malice or jealousy on the Germans' part--I would hate to think that that is the real reason. I suspect that it has something to do with a matter that has not been raised this morning--the belief among Members of the European Parliament that this sounds like a good thing.

MEPs may believe that it would be better for the artists to benefit from the resale of their work, rather than a dealer. I can imagine colleagues from all political persuasions trooping into the European Parliament, thinking that their proposals will support young artists who will receive the benefits from their work in the future. In fact, they could not be more wrong.

I declare an interest--I was an art student. I was one of the rebels in the 1960s at Hornsey--the most famous art college in the world at that time. We destroyed that reputation pretty effectively. However, it was at that time that I began to understand that the network of dealers and the way in which the art trade works in London is vital in encouraging the undergrowth of young artists, creative talent and experts which later grows into great artists and great industries.

Mr. Ian Taylor: I am sorry to intervene on the Minister, but he mentioned the European Parliament. On 10 December 1996, the rapporteur of a Committee reporting to the European Paliament said:

There is some common sense evident in that opinion--I wonder how much further forward it has been taken.

Dr. Howells: I am grateful to the hon. Gentleman for reminding me of that, because I do not think that any progress has been made. That is the problem. I suspect that the gut reaction of many MEPs has been that the issue is a small one among many and that they may as well go along with the Commission.

The hon. Member for Esher and Walton, my predecessor in this job--in fact, he was my predecessor but one, as I came in after a little earthquake in July--made an important point. The Commission contends that harmonisation of the artists' resale right is a single market measure, but article 100A is the appropriate legal basis. The Commission rejects suggestions that the measure is a fiscal or social one, meriting a change in the legal base. In all honesty, I see no possibility of persuading the Commission to change the legal base.

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Many right hon. and hon. Members have raised the possibility of our getting allies to fight this cause, but we have sought in vain for allies, as the previous Government did. We would have to get all the other member states to agree, as unanimity would be required in the Council. Article 173 provides scope for challenge, but only in relation to acts that are already adopted. We have significant doubts about whether the Commission has properly justified the proposal as an article 100A measure. Its failure to produce an impact report only compounds our doubts.

Sir Michael Spicer: What is the Government's position? A little confusion seems to have arisen in the House of Lords. On 28 January, Lord McIntosh gave a firm assurance that there would be no increase in the rate of VAT on art. I am told that Baroness Jay is now running around saying that that assurance was not a firm one and back-tracking on it.

Dr. Howells: I have not heard what Baroness Jay has said. We are implacably opposed to an increase in VAT and we will fight it however we can. I was very grateful to my long-term friend, the right hon. Member for Haltemprice and Howden (Mr. Davis), when he brought up the use of the Luxembourg arrangement--I have heard it called an arrangement, an agreement and a compromise--which I will consider seriously, because it is a central issue. The right hon. Member for Wells said that it was worth making a stand, and I agree entirely.

Mr. David Davis: I have every sympathy with my friend the Minister. Let me give him what I hope will be helpful advice, because I know what will happen: his officials and those at the Foreign Office will say that a Luxembourg compromise is not a good idea as it rocks the boat too much. That is what they always say. On at least one occasion, and I think on two, I have witnessed France invoking a Luxembourg compromise, claiming a vital national interest, most recently about a shipping industry issue, which was no bigger than this issue and was certainly not unique to France. That compromise was accepted by Germany and the rest of the Council. I have never heard of a better case than ours for a Luxembourg compromise.

Dr. Howells: I am grateful for that advice, and I undertake to consider it seriously and try to argue my corner.

Little has been said with which I disagree. My hon. Friend the Member for Linlithgow (Mr. Dalyell) raised an important issue that is not widely understood: the centrality of the trade. The trade is enormously important and tells us something about the way in which wealth is generated today. We have hundreds of debates on the coal and steel industries and on all sorts of manufacturing sectors, but we probably have only one great cluster in this country that is world class: the City.

The City attracts industries--some of them, including the art trade, have been around for a long time--that are integral to it. It is a way of life that generates wealth and creativity. The business of intellectual property rights, encouraging and rewarding creativity, makes a reality of the rhetoric, in which the Government and the previous Government have indulged constantly, of adding value to

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work. If we are to add value in a real sense by encouraging the undergrowth of young talent, we will have to get this right.

Perhaps the right hon. Member for Wells was correct in his analysis of why the measure was being pushed through under the German presidency. I know that the Austrians were keen to go ahead with it but could not find the time. I am amazed that Commissioner Monti sees fit not to publish his report. It will be months late. This is important to the British economy and, as the right hon. Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan) said, to the European economy as a whole, but the Commission does not understand that importance. It is perhaps not properly understood that the art market is one of the drivers of the modern economy.

It seems a paradox that dealing in fine art, much of it old, should be so controversial. If we cannot encourage our young people to become artists, writers and designers, melding science and creativity, as some of our most brilliant companies do, we will not survive as a first-rate exporting nation. What we are discussing is crucial to that.

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