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10 pm
Mr. Christopher Gill (Ludlow): My hon. Friends the Members for East Yorkshire (Mr. Townend) and for Guildford (Mr. St. Aubyn) have made a good case on behalf of the London art market and shown how the tax will adversely affect it. I have every sympathy with their point of view and the strength of their argument.
The Government are fully signed up to the European Union. Instead of looking at the issue in the narrow confines of the British interest, why has it not been possible for the British Government to persuade the European Union that not increasing the tax is in the interests of the European Union as a whole, not just the London art market? London is part of the broader picture. Why has it not been possible to persuade the powers that be that the change would damage the European Union? The argument should be advanced on a broader plain. We need to explain to our European partners that the opposition is in New York and Geneva. By damaging the London market, all that we are doing is damaging Europe.
Mr. Fabricant:
I endeavoured to intervene on the Minister earlier, but she was determined not to let anyone in. When we debated the subject on the earlier narrow Ways and Means motion, she said that we would be quite competitive at 5 per cent., because, apart from Denmark, other countries had a higher rate. The problem is that those countries are not the competitors. The competitors are Basel, Geneva and New York. What is the general sales tax for art works in New York state or Geneva?
Mr. Heathcoat-Amory:
We debated the issue earlier today, but there are some questions outstanding, to which my hon. Friends have referred. I have two questions.
It is regrettable that VAT on imports is to be doubled. That will be a heavy and savage blow to the British art market. No one has made a secret of the fact that we are
dealing with a pre-existing directive. I am happy to reassure the hon. Member for Croydon, Central (Mr. Davies) again that it had nothing to do with me. The negotiations took place while my predecessor was Paymaster General, but I do not dissociate myself from my noble Friend Lord Cope, who secured an undertaking that the Commission would conduct a study before the derogation ran out. That study was forthcoming and showed that damage had been caused even at the existing levels of VAT on art imports.
The study also mentions that in the 1950s Paris was the biggest art market not just in Europe, but in the world. It has been damaged by a combination of the droit de suite--a levy on the resale of works of art--and the imposition of VAT on art imported into France. That is a matter for the French Government, but the same levels of VAT are to be imposed on the UK market despite the damage that has been shown in the study by the consultants. That conflicts with article 2 of the treaty of Rome, as amended, which says that the European Union should have a number of objectives, the first of which is to promote economic and social progress and a high level of employment. It has been shown by the study that the proposal will cost jobs in the EU, and will undoubtedly do further economic damage. It is my contention that the European Commission is breaking the treaty in persisting with its intention to bring the minimum level of VAT on art imports up to 5 per cent.
My first request, which has been echoed by my hon. Friends, is that the Commission should be asked to conduct a further study after the VAT directive is enacted to ensure that no further damage is done and, if damage is inflicted, that action will be taken. That is a modest request to make of the Government.
My second request concerns the linked matter of droit de suite. Happily, that separate threat has been deferred. However, it has only been postponed, and I would like to know on what terms it has been deferred, whether it will come back, whether further technical work will be undertaken and whether further political consultations are taking place.
The art market needs to know the answers to those questions tonight. I asked them earlier today without success. Perhaps the Minister will take this opportunity to answer those two specific questions.
Dawn Primarolo:
We can sum up the approach of the right hon. Member for Wells (Mr. Heathcoat-Amory) as, "It is nothing to do with me. I was just a member of the Government of the time--or, at least, I was voting for them."
The previous Government committed the United Kingdom to an absolute legal obligation to increase VAT on works of art from 2.5 per cent. to 5 per cent. It is true that the previous Government asked the Commission to undertake an independent study of the impact of the imposition of 2.5 per cent. VAT on the art market. However, the study was not made conditional on anything. It was not put in the directive, nor was it said that the derogation should not expire until the study was completed.
The study was completed independently, and arrived late. It showed that there were grounds for continuing to argue the case that the increase from 2.5 per cent. to 5 per cent. should not take place. The Commission ignored that,
and made its own recommendations. The Government were faced with an absolute legal obligation to increase the VAT to 5 per cent, which could not be resisted. There was simply no practical choice but to implement the increase. We were faced with the legal obligations signed up to by the previous Government.
Earlier, I referred to the cost to the British art market, how much revenue would be raised by increasing the levy to 5 per cent. and the results of the concession. The British Art Market Federation has said that it believes that the overall package will enable the art market to remain as competitive as it is already. Therefore, the Government's figures of a £10 million rise, as well as the cost of the concession, will result in a revenue-neutral position. [Interruption.] I am not surprised that Conservative Members do not want to listen, because their crocodile tears at this late stage are pathetic. The Government have fought hard, working in partnership with the art market, and we continue to press the case. We made it clear to the Commission that we want to pursue the impact on the art market of increasing VAT.
The British art market is of value to Europe. We should think not about our art market versus the rest of Europe but about sales in the international market. I am happy to give the House the undertaking that the Government will continue to fight for the best interests of the art market. We deeply regret the fact that the previous Government were so foolish as to create an absolute legal obligation with which we now have to comply, but there is no alternative.
The package that we have proposed will enable the art market, so it tells us, to remain competitive and vibrant and attract new trade.
Mr. Townend:
The Paymaster General said that the art market has said that the reductions on ceramics and tapestries--which are minor parts of the market compared with painting--will allow it to remain competitive. Who exactly has said that?
Dawn Primarolo:
I could send the hon. Gentleman a copy of the British Art Market Federation's press release in response to our proposals. I am sure that he would be delighted to read it and to congratulate the Government on having done our very best--given that we were forced to increase VAT--to put together a package that mitigates the impact and helps the art market. I commend the new clause to the House.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Brought up, and read the First time.
Dawn Primarolo:
I beg to move, That the clause be read a Second time.
The new clause corrects an error made in the transcribing of a cross-reference from the Value Added Tax Act 1983 to the Value Added Tax Act 1994, unintentionally extending zero-rating to VAT on food to include pet food, although it has been this Government's, the previous Government's and the industry's interpretation that VAT was to be applied at 17.5 per cent. It restores the position to what everyone understood it to be until Customs and Excise recently discovered the error. I commend it to the House.
Mr. Letwin:
The new clause gives us a marvellous illustration of what is wrong with VAT legislation. The drafting mistake that the new clause remedies arose because of a quadruple negative. In the first place, everything is subject to VAT, but schedule 8 zero-rates--makes not VATable--certain items, including those in group 1, item 2 of which is animal feeding stuffs and pet foods; but certain items in group 1 are excepted and are not not VATable; but there is an override for preparations and extracts of yeast, meat or egg, which are not not zero-rated, or not not not VATable, making them not VATable, or zero-rated; but the override is overridden by note (6), which restricts some of the overrides to beverages such as Bovril, the favourite drink of my hon. Friend the Member for Lichfield (Mr. Fabricant). That makes the other meaty preparations on that list not not not zero-rated, in which case, they are not not not not VATable--in which case, they are, of course, VATable. All of that was meant to apply to pet foods--poor old pet foods.
'. Schedule 8 to the Value Added Tax Act 1994 (zero-rating) shall have effect, and be deemed always to have had effect, as if in Group 1 (food), in Note (6) (which provides that certain items which override the exceptions listed in that Group relate only to item 4 of the excepted items (non-alcoholic beverages)) for "Items 4 to 6" there were substituted "Items 4 to 7".'.--[Dawn Primarolo.]
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