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Mr. John Bercow (Buckingham): Will my hon. Friend give way?

Mr. Christopher Leslie (Shipley): Will the hon. Gentleman give way?

Mr. Clifton-Brown: I shall give way to my hon. Friend and then to the hon. Gentleman.

Mr. Bercow: Is my hon. Friend aware, in the context of the motion, that the habitual refrain of Ministers is that they eschew the cause of tax harmonisation within the European Union despite appearances to the contrary? Does my hon. Friend agree that it is of the utmost importance that, in responding to the debate, the Paymaster General should explain to us how she distinguishes the words "to harmonise" and "to co-ordinate", given that page 898 of the "New Shorter Oxford English Dictionary" defines "to co-ordinate" as to

"place or class in the same order, rank or division"?

What is the difference?

Mr. Clifton-Brown: My hon. Friend raises an interesting point. However, I am sure that, if I strayed too far down that path, you would rule me out of order, Mr. Deputy Speaker. We on the Opposition Benches

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believe in tax competition, not tax harmonisation. On this matter, the Government are entirely inconsistent. When I raised at some length the question of tobacco taxes, the Government were all for having a tobacco tax at a different rate from that of the rest of the EU and losing a huge amount of revenue thereby. However, when it comes to the issue that is before us, which will result in the loss of many jobs, the Government seem to want harmonisation. I do not understand why the Government cannot be more consistent on this matter. If they were, at least everyone would know where he stood.

Mr. Leslie: Will the hon. Gentleman explain why, in 1994, the Conservative Government gave a legal undertaking to increase the value added tax on imported works of art to 5 per cent?

Mr. Clifton-Brown: If the hon. Gentleman had been present--I am not sure whether he was--to listen to my right hon. Friend the Member for Cities of London and Westminster, he would have heard that, if we did not agree to an increase from 2.5 to 5 per cent., albeit that we had a derogation for 20 years, we would be subject to a threat to take us to the European Court, and the European Union could have imposed a 17.5 per cent. rate of tax. That would have been far more damaging.

I am saying that the Government are dealing with the circumstances as they arise, and they are that the derogation is to end in June or July. The Government have to deal with that. It is their stewardship that we are under, whether we like it or not. They appear to be intent on decimating our art market because it seems that they cannot put an appropriate argument to our European partners that the increase in tax is disastrous for us and for them as well. It is daft. If the increase would benefit the EU as a whole, there would be some sense in it, but that is plainly not the position. As my right hon. Friend the Member for Cities of London and Westminster has said, business will be driven away. It will go not to Paris, Berlin or anywhere else in the EU, but outside it. It will go, for example, to Geneva, New York or Tokyo. The EU will lose jobs, balances of payments will be adversely affected and tax revenues will be lost.

The Prime Minister put his personal authority on the line when he said that he would do something about this tax increase. He said, in effect, that he would convince our European partners that it did not make sense. At the end of the day, he failed in that respect. If that has happened, how many more times will he fail in Europe, and how many more times will the United Kingdom be disadvantaged thereby?

5.25 pm

Mr. David Heathcoat-Amory (Wells): Like a number of my right hon. and hon. Friends, I do not think that the motion should be nodded through, notwithstanding that we can debate the substance of new clause 14 at a later stage this evening. We need to know from the Minister now what the anticipated yield will be from doubling valued added tax on imported art.

We are talking about a most important industry. Labour Ministers seem somewhat dismissive of the art industry as a whole and they should be reminded that it is not based only in London. There is an extensive network of dealers and galleries throughout the United Kingdom and

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there are many ancillary industries such as framing, conservation, insurance and shipping, all of which feed off the international market, which is based in London.

The motion would double the rate of VAT on imports. We know that it derives from a directive passed in 1995, from which the United Kingdom had a limited derogation. As so often happens with the European Union, the boomerangs return. The Government may remind us this evening that they have postponed the separate threat represented by droit de suite, the levy on the resale of contemporary art. It would be useful to know on what terms that has been postponed, and whether it may turn out to be a boomerang as well.

In the 1995 agreement, it was agreed that, by 1999, when the British derogation ended, there should have been a study into whether VAT on imported art was damaging the European art market. That report has been produced. It was late--it should have been produced last year, but it was made available only a few months ago. It is interesting that, although the report was commissioned by the European Commission, and to that extent is not wholly impartial, it nevertheless paints a good picture of the damage already caused by VAT, even at present levels.

As regards the impact on the United Kingdom, the report states:

"Between 1994 and 1997"--

during that period, VAT at 2.5 per cent. was imposed--

"the United Kingdom went from being a net importer . . . to being a net exporter"

of art, so VAT even at that lower rate clearly caused damage. The report also records--this is dangerous--the views of the New York dealers, whom it states

"are all very excited at the prospect of import VAT rates being increased in the UK (which they see as their main competitor)."

The report concludes that

"high value buyers and sellers are increasingly choosing New York over London as their preferred venue because of the 2.5 per cent. differential."

That happens even at the present VAT level, which we are about to double.

Mr. Geraint Davies (Croydon, Central): Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: Will the hon. Gentleman forgive me? I want to give the Minister an opportunity to respond.

The Commission's own study shows conclusively that damage has been caused, so it was--I choose my words carefully--mendacious of the Commission to assert in its press release that the report had provided no evidence of damage to the European art market. That was flatly untrue.

The Minister will probably remind us in a moment that the Commission has agreed to reduce the 17.5 per cent. VAT rate that at present applies to contemporary art painted or created since 1973. That is a welcome development, but it does not offset the damage that will be caused by the doubling of the 2.5 per cent. rate.

The Commission, which after all has a duty to promote the economic interests of Europe as a whole, even if it is dismissive of the UK's interest, should not have ignored

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the evidence of its own study, which showed damage not simply to the UK, but to the entire European art market. The only people who will be pleased by the motion are competitors outside Europe, in Switzerland, the United States, Japan and elsewhere. It will simply transfer business--

Mr. Leslie: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: I shall give way very quickly to the hon. Member for Shipley (Mr. Leslie); I apologise to the hon. Member for Croydon, Central (Mr. Davies).

Mr. Leslie: I am grateful to the right hon. Gentleman. Can he confirm whether, when he has Paymaster General in 1994, he was in any way involved in the discussions or negotiations about the move from 2.5 to 5 per cent?

Mr. Heathcoat-Amory: I was not Paymaster General in 1994, so I had nothing to do with the negotiations.

I conclude with a request to the Paymaster General. If the motion goes through--it looks as though it will--and if the Commission's own study turns out to be correct and damage will be caused, will she ask it to produce a further study in due course so that it can return to this matter and reduce the minimum mandatory rate?

Mr. Clifton-Brown: Does my right hon. Friend agree that the people responsible for the measure are officials sitting in highly paid jobs in the Commission who do not care about job losses even though 17.5 million people are already unemployed in the European Union?

Mr. Heathcoat-Amory: My hon. Friend is entirely correct. The measure is a bureaucrats' charter and the people in the Commission who introduced it will not lose their jobs. Our constituents who rely on the vitality and success of the trade will lose their jobs--not the people in the big auction houses, which will simply transfer their auctions to New York. The little people--the porters, the packers, the office staff, the experts, the framers--will lose their jobs. They have been abandoned by theLabour party, but they have not been abandoned by us,as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) says.

I understand the constraints under which the Paymaster General has been negotiating, but, even at this late date, I ask her at least to ask the Commission to study this matter and return with other proposals if the damage, as reported, occurs.

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