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Mr. St. Aubyn: I am grateful to my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) for drawing attention to the last Government's difficulties. Their decision to accept the halfway house that has persisted until now was a compromise that was, in effect, forced upon them. It was always envisaged that the economic impact of a 2.5 per cent. VAT rate would be properly assessed by the European Union, and it was reasonable to suppose four years ago that, when the matter came up for review this year, our partners would understand the effect that the rate has had on the London art market in particular.
The Paymaster General asked us to applaud her efforts. The fact is that the widening of the 5 per cent. band will not affect the major issue, which is where international art sales take place. It is in the sales of Impressionist paintings and old masters that the really attractive big money is being spent. Those are exactly the sort of sales which, in the future, will take place almost exclusively in Geneva, New York and other places outside the European Union. It is the lucrative end of the market that London will lose, and the consequences for London will be severe.
The Paymaster General has failed to tell us in this debate or the previous one how many jobs she expects the market to lose as a result of the measure. There can be no doubt that jobs will be lost. It may not be as many as the 5,000 predicted earlier--let us hope that that is the case--but there will be job losses.
The Paymaster General's comment that the new measure is tax neutral beggars belief. The only sense in which it is tax neutral is that the amount of tax that is raised may be no more than the amount that was raised under the previous system. Any situation in which the tax rate doubles but the amount of tax collected remains the same is, by implication, one in which the volume of transactions has, in effect, halved. Will she confirm--I hope she is listening--that in the key areas, including the old masters, the Impressionists and other parts of the value end of the art market, the implication of her prediction on revenue is that the value of sales in the United Kingdom will halve as a result of the increase in tax?
In Committee, I suggested to the Paymaster General and her advisers that they should look at the exemption for culture under the sixth VAT directive. There is a clear exemption for cultural activity in the European Union--VAT should not apply to cultural activities where those are not to the disadvantage of other member states.
It is widely agreed that, in the case of the art market, any low rate in the UK is not to the disadvantage of other member states because we are in competition not with them, but with Geneva, New York and other centres where there is no tax to pay. Why is it that before we did not impose tax on art sales in this country? It is because, fundamentally, it is not a financial transaction but a
cultural exchange. Therefore, under the VAT directive, there is a specific exemption, which could be explored with our other partners. On that basis, a wide exemption could be granted to the market in this country.
Four years ago, we chose not to go down the contentious legal route to protect our art market. We chose to enter a compromise deal--
Mr. Geraint Davies:
Will the hon. Gentleman give way?
Mr. St. Aubyn:
I will finish in a moment; I shall let the hon. Gentleman in in a moment.
We chose to enter a compromise deal on the basis that, within four years, the evidence would be clear that the rate was damaging our market and not helping anyone else's. We assumed that our partners in Europe would accede to our request at the end of the period to cut the rate again. Having failed to do so, we should be going down the legalistic route. We should be trying to protect a valuable business in this country. It is the Government's failure to do so, despite their promises in recent months, that is the real disappointment. That is why our questions deserve a proper answer from the Paymaster General.
Mr. John Townend (East Yorkshire):
I do not know whether I heard the Paymaster General correctly, but I got the impression that she said that the 5 per cent. rate was not continuous but for a limited period. If that is so, will she tell us how long that period is and what the rate is likely to increase to?
The Paymaster General surprisingly said that the decision to double the VAT rate was welcomed by the art trade in this country. I find that incomprehensible because the only people who will welcome the VAT increase in London are art dealers in New York and Switzerland.
The terrible situation has shown us one thing. As my hon. Friend the Member for Guildford (Mr. St. Aubyn) said, naturally, we expected from an equitable point of view that our European colleagues, having looked at the effect of the 2.5 per cent. rate, would see reason and allow us to continue at that rate. As has been said many times, it is not a question of harmonisation to remove unfair competition with other countries in Europe. There are only three international markets in the world: London, Geneva and New York. Once the change is made, all that will happen is that the European Union as a whole will lose out in the international art market to America and to Switzerland. Does not that fact demonstrate--to the House and to the British people--that, when our vital national interests are at stake, we cannot depend on Europe?
It does not matter whether the previous Government made a great mistake in agreeing the change or the current Government are making a mistake now. The current Government said, "Things will be different: we are at the heart of Europe. We shall persuade our European partners to see reason." In this case, we have reason on our side, but the Government have failed completely.
Mr. Geraint Davies:
Today, we have heard much froth and rubbish from Opposition Members on the issue to which there are two aspects: first, VAT on certain items
Let us get our facts right. Earlier, my hon. Friend the Member for Shipley (Mr. Leslie) asked the shadow Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), whether he was Paymaster General in 1994, when the previous, Conservative Government agreed the VAT increase from 2.5 to 5 per cent.--about which Conservative Members have been whingeing today, but which they agreed--but he said that he was not Paymaster General at that time. [Interruption.] However, all the records--such as old lists of ministerial responsibilities--seem to say that, in September 1994, David Heathcoat-Amory Esq. was the Paymaster General.
Mr. Davies:
Obviously the right hon. Gentleman has some sort of memory problem. Perhaps that is why he has a majority of only 528. [Hon. Members: "Give way."] I shall certainly give way, if the right hon. Gentleman would like to correct the record.
Mr. Heathcoat-Amory:
I am grateful to the hon. Gentleman for graciously giving way, as he mentioned me. I should like to make it absolutely clear, and beyond doubt, that I had nothing to do with the negotiation of those matters or the decision, all of which were dealt with by my noble Friend Lord Cope. Will the hon. Gentleman accept that assurance?
Mr. Davies:
Does that mean that the right hon. Gentleman knew nothing about it, and had no responsibility for it whatsoever? In answer to the question of my hon. Friend the Member for Shipley, the right hon. Gentleman said that, in 1994, he was not Paymaster General--but he was. Could we get that matter clear, for the record? What sort of Cabinet was involved in the decision? Regardless of whether the decision was taken by him, one of his colleagues or someone who has subsequently slipped off the electoral terrain--as I said, the right hon. Gentleman has a majority of only 528--with such talk about positions previously held, one wonders whether he will be in the House for very much longer. The simple fact is that British art will be successful for much longer than he will be.
There will be a marginal tax increase. Although no one welcomes the increase--which was introduced by Conservative Members--to counteract it, the Government are introducing all types of concessions. There will be a massive reduction in the marginal rate of VAT, from 17.5 to 5 per cent., on tapestries, ceramics, enamels and photographs.
More widely, there is a new generation in a thriving antiques industry, which will generate many new jobs. However, all we hear from whingeing Opposition Members--crying crocodile tears, moaning and rolling around on the Opposition Benches--is, "What about the
job cuts?" The Government are reviving the industry, while dealing with the legacy of tax constraints that we inherited from the previous Government.
Mr. St. Aubyn:
Will the hon. Gentleman give way?
Mr. Davies:
Perhaps we can now move on. I would have taken the hon. Gentleman's intervention, but he refused--from absolute embarrassment--to take mine.
Mr. Tyrie:
I simply want to ask the Paymaster General a few questions that I was unable to put in an intervention.
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