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Session 2005 - 06
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Standing Committee Debates

Draft Artist’s Resale Right Regulations 2006

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Seventh Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


Mr. Eric Forth

†Berry, Roger (Kingswood) (Lab)
†Blunt, Mr. Crispin (Reigate) (Con)
†Corbyn, Jeremy (Islington, North) (Lab)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Dowd, Jim (Lewisham, West) (Lab)
†Ellman, Mrs. Louise (Liverpool, Riverside)
†Follett, Barbara (Stevenage) (Lab)
†Heathcoat-Amory, Mr. David (Wells) (Con)
†Key, Robert (Salisbury) (Con)
Lamb, Norman (North Norfolk) (LD)
†McCarthy-Fry, Sarah (Portsmouth, North) (Lab)
†McIsaac, Shona (Cleethorpes) (Lab)
†Michael, Alun (Minister for Industry and the Regions)
†Reid, Mr. Alan (Argyll and Bute) (LD)
†Seabeck, Alison (Plymouth, Devonport) (Lab)
†Swire, Mr. Hugo (East Devon) (Con)
†Wilson, Mr. Rob (Reading, East) (Con)
Geoffrey Farrar, Committee Clerk

† attended the Committee

The following also attended, pursuant to Standing Order No. 118(2):

Duncan, Mr. Alan (Rutland and Melton) (Con)
Prisk, Mr. Mark (Hertford and Stortford) (Con)
Whittingdale, Mr. John (Maldon and East Chelmsford) (Con)

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Thursday 2 February 2006

[Mr. Eric Forth in the Chair]

Draft Artist’s Resale Right Regulations 2006

8.57 am

The Minister for Industry and the Regions (Alun Michael): I beg to move,

    That the Committee has considered the draft Artist’s Resale Right Regulations 2006.

I hope we are going to have a more constructive discussion than the right hon. Member for Wells (Mr. Heathcoat-Amory) predicted in a rather silly intervention at Prime Minister’s questions yesterday. He appeared unaware that it was a Conservative Government who agreed the qualified majority voting system under which the directive was agreed. He also seemed unaware that the negotiations over the directive were successful from a UK point of view because we won three significant concessions, to which I shall return in a moment. Finally, he seemed unaware that the Government have listened carefully to all sides in deciding how to implement the directive.

The regulations seek to provide maximum protection for the art trade, which is a great UK success story, while achieving a good outcome for living British artists and particularly those who are early in their career. My right hon. Friend the Prime Minister was therefore right to refute any accusation of gold-plating. The regulations reflect simple common sense; indeed, the position adopted reflects a balance of benefits, rewarding artists’ creativity, while ensuring that there is a low risk or cost to the art market.

The UK has adopted all options to minimise the risk of sales being diverted from the UK. We have adopted the lower royalty rate of 4 per cent. on the first band of the sales price and are making full use of our derogation to defer the application of the right to works by deceased artists. The implementing regulations do not go beyond the directive, which is why any allegation of gold-plating is inaccurate and mischievous. The Government have exercised options within the directive to ensure that the implementation is the most appropriate for the UK, balancing the needs of artists, while protecting the art market.

We are required to set a threshold of between zero and €3,000. Setting the threshold at €1,000 ensures that as many living UK artists as possible can benefit from the resale right, with minimum cost to the art market. Our decision to do so follows extensive consultation, during which it became clear that such an approach would benefit a substantial number of poorer UK artists and that the impact on business administration costs would not be excessive. The €1,000 threshold was in fact recommended by the
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Select Committee on Culture, Media and Sport, following its inquiry into the market for art, which was published in March 2005.

One can also look at the comments made by a variety of experts in the field. Speaking on behalf of the Design and Artists Copyright Society, Joanna Cave said

    “Recent figures show that 40 per cent. of all British artists survive on less than £5,000 per year, and the impact of the Right being implemented cannot be overstated.”

She said that the Government had rightly struck a balance between the interests of artists and the art business and added that it was very much to be welcomed that so many British artists would be able to benefit from this important piece of legislation.

In a letter to The Times, Tracey Emin, Peter Blake, Steve Bell and others said that a threshold of €3,000

    “by which most of the country’s poorest artists receive no benefit at all . . . would be a missed opportunity whose cost in terms of lost creativity and potential will be counted for years to come.”

They concluded:

    “we call on the Government to implement the directive fairly”,

and we have responded to that call sensibly and reasonably.

The Culture, Media and Sport Committee said in its report:

    “We are not intrinsically opposed to the introduction of the artists’ resale right into UK law, though we do believe it should not benefit solely the richest artists. We recommend that the Government lowers the threshold at which the resale right applies from 3,000 to 1,000 €.”

Approval of the regulations will introduce a new right, the artist’s resale right, into the UK, implementing European directive 2001/84/EC, and will allow us to meet our obligations under Community law. The artist’s resale right entitles artists to receive a royalty each time an original work that they created is re-sold. Often, as an artist’s reputation grows, the value of works created early in their career will increase significantly. Of course, without a resale right the artist gets no benefit from that increase. A resale right recognises the investment that an artist makes in their work and their creativity.

The right will apply only to sales involving an art market professional. Sales purely between private individuals will not be affected. Resale royalties are calculated using a tapering scale of percentages applied to bands of the sale price. That means that for the higher priced works the overall percentage of the sale price paid as a royalty decreases. There is also a cap on the total royalty payable on any one sale of €12,500.

Throughout the negotiation on and implementation of the directive, the Government have made it clear that their top priority is to ensure that the UK art market is not damaged by the introduction of the resale right. The UK has a thriving art market. It is the third largest in the world, and the largest in the EU, worth approximately £4.6 billion a year. Although a resale right is common in many European countries, it is entirely new to the UK. In order to protect a market the size of ours, the Government fought hard during negotiation of the directive to secure key concessions to minimise the risk that significant sales would be
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moved from the UK to countries that do not have a resale right. The first concession that the UK negotiated—

Mr. Hugo Swire (East Devon) (Con) indicated dissent.

Alun Michael: I do wish that the hon. Gentleman would not, from a sedentary position, talk down the Government’s achievements, which are good for the UK generally.

The first concession was the setting of a €12,500 cap on the total royalty payable. The original EU proposal did not contain a cap. That would have resulted in sellers paying very large royalties on high-value works and could have resulted in many high-value sales being diverted. That would have been damaging to our art market and would have penalised our successful artists, who would not have received any royalty at all.

The second concession allows the UK to delay the implementation of the right for works of art whose author is deceased. Resale right normally lasts for the duration of copyright in a work. For works of art, that is the life of the creator plus 70 years after their death. The Government secured an option in the directive for the UK to delay applying the right to those additional works of art until 2010 at the earliest. There is capacity to extend that arrangement for at least another two years, delaying full implementation until 2012. That sector of the art market is the most valuable to the UK, and we will make full use of the derogation.

Neither Switzerland nor the USA, the countries with art markets comparative to our own, currently has a resale right. Therefore, the final concession that the UK secured was an obligation on the European Commission to enter negotiations to make resale right compulsory for countries that are signatories to the Berne convention, the main convention governing international copyright law. If resale right is made compulsory under Berne most countries, including the USA and Switzerland, will have to provide the right. It was always clear that we were unlikely to succeed in that goal in the short term. Consequently we intend to use the scheduled review of the directive to press for the derogation for deceased artists to be made a permanent feature of the directive.

Mr. Alan Duncan (Rutland and Melton) (Con): Given that the legislation is drafted in terms of euros, but we will be trading artists’ work in pounds, on what basis will one be converted to the other in a certain and understood way?

Alun Michael: That would depend on the exchange rate at the time of the transaction. That is my understanding unless I receive any further details.

The directive contains a number of implementation options for member states, and I shall outline some of the most important points concerning them. First, however, I stress that we carefully considered all the available evidence before reaching our decisions. The Government held formal consultation in 2005 and have held informal consultation with key interested parties throughout the implementation process. We considered the recommendations of the Culture,
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Media and Sport Committee contained in its report from last March. We also received independent economic analysis of the likely impact of the resale right and monitored planned implementation in other EU countries.

Resale right will apply only to sales above a minimum price threshold. Under the directive, member states may set their threshold below €3,000. Setting the UK threshold at €1,000 will benefit a significant number of UK artists. Last year, for example, 85 per cent. of work sold for between €1,000 and €3,000 in the UK was by British artists. Artists whose works resale for between €1,000 and €3,000 are likely to be at the start of their careers and often on very low incomes. Those are the artists most in need of the extra income that resale right will generate and whose creativity we most wish to encourage.

Mr. Rob Wilson (Reading, East) (Con): Is the Minister aware of the two Patent Office reports, independent surveys undertaken recently, that show that the impact on young artists would be minimal, to say the least? I think that one survey actually said that the resale right would affect, in total, 189 artists.

Alun Michael: I am aware of the two reports and of the views that I have quoted of those directly involved in the art world. All that information was taken into account before we reached our conclusions.

The major concern when setting the threshold is whether the administrative burden placed on business will outweigh the benefit to the artist. Sales of works of the value in question will generate only very modest payments, and while those would be greatly welcomed by the artist, we must ensure that the burden on business is not excessive. A detailed proposal by a collecting society showed that the cost to business could be less than £1 per transaction plus £10 per quarter to identify relevant works in their catalogues to which the right applies. All the additional costs would be covered by the collecting society which would take commission from the royalties collected. Although those figures were disputed, we have not received substantiated evidence that the costs would be significantly higher.

While we accept that those figures might be a slight underestimate, we believe that the true costs will be in that region. We have considered all the evidence and have concluded that €1,000 strikes the right balance. The evidence is that resale right can be managed effectively for relatively small payments, but for works of less than €1,000, it is clear that the costs of collection cannot be justified. We will monitor the impact of that decision, and will be prepared to amend the figure if necessary.

A second key decision concerns the manner in which royalties will be collected. Under the directive, we have the option of making it compulsory that royalties be collected by a collecting society. We believe that compulsory collective management will reduce the overall cost to business significantly. Several studies into the impact of resale right have been carried out, and all have concluded that the costs to business will be lowered if collection is administered solely by
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collecting societies. Indeed, a number of businesses requested that in response to the formal consultation and during informal consultations.

If artists were free to collect royalties individually, the art market might be faced with a constant stream of separate requests for sales information. Those requests could arrive at any point up to three years after a sale, and payment could be claimed up to six years after. It would be difficult for the art dealer to verify the claim, whereas a collecting society would easily be able to provide evidence of eligibility and create efficient mechanisms for the collection and distribution of royalties.

My final point is on the royalty for the first portion of the sale price, which may be set at either 4 per cent. or 5 per cent. Clearly, the higher rate would benefit a number of artists, including the poorest, whose works sell for lower prices. However, increasing the rate on the first band of the sale price would increase many royalty payments. It would also result in the sale price at which the maximum royalty becomes payable being lowered. That could increase the number of sales at risk of diversion. We have therefore decided that that is not appropriate for the UK.

As I have said, resale right is an entirely new concept in the UK. We intend to commission research to measure its true impact on the art market. That will provide us with the information that we need to feed in to the commission’s review of the directive, scheduled for 2009.

I have outlined the Government’s proposal. We believe that it is a balanced and workable implementation of the directive, which will benefit those artists whom we most wish to support and encourage while providing adequate protection for our art market. I commend the regulations to the Committee.

9.11 am

Mr. Swire: It is a pleasure, Mr. Forth, to serve under your chairmanship. I almost had to apologise for being late this morning. I was in my office listening to an interesting exchange—which the BBC had told me was going out earlier—between myself and Joanna Cave of the Design and Artists Copyright Society on this very subject. One of the presenters referred to me as an ex-director of Sotheby’s. That is entirely correct, and a label that I wear with some pride. It is relevant to these proceedings because this is one of the rare occasions on which I can honestly say—having been a director of Sotheby’s for some 10 years, having worked at the National Gallery before that for eight or nine years and having been a dealer as well at various times—that I am in the dangerous position of being a politician who claims to know something about the matter under discussion.

The bad news for the Minister is that such is the feeling on our side of the House that we are represented on this Committee not only by the shadow Secretary of State for Trade and Industry but by a
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former Paymaster General, who studied the matter closely in Government. No doubt, they will bring their knowledge to the proceedings in due course.

I do not know why the Whips have it in for the Minister; he always seems to be handed the poisoned chalice. I came up against him in Committee on the hunting legislation. Having destroyed large parts of the rural community, he has now been given the job of destroying one of the most vibrant art markets in the world. I do not know what his political legacy will be—perhaps he will be described as the Luddite of modern government.

Although I declared an interest in Sotheby’s, I have no relationship with it at present. However, I do have an interest in the arts, as the shadow Secretary of State for Culture, Media and Sport and as chairman of the Speaker’s Works of Art Committee. As the Minister will know, that organisation might even commission a bust of him in due course, if his political progress improves. We commission works of art monthly, so I still have a foot in the art world.

I do not wish to rehearse the arguments that have been offered in recent months, either in the Culture, Media and Sport Committee or in the other place, but I do welcome the Minister in one respect. He can only be an improvement on his colleague, the Under-Secretary of State for Trade and Industry, the hon. Member for Brent, North (Barry Gardiner) who, in a Westminster Hall debate on the subject, did not know what he was talking about.

With your indulgence, Mr. Forth, I shall phrase my remarks as a series of questions, which I hope the Minister will actually answer. We have reached the point at which we all know the emotional argument about struggling la boheme artists in their studios. What we do not know is how the Minister and his colleagues, particularly Lord Sainsbury, have performed such a volte face, and what the ongoing implications will be for the British art market. I contend that this is lazy legislation and that the Government do not fully understand its implications or what it is about. It has been moved around from Minister to Minister in a game of pass the parcel and, unfortunately for him, it has landed in the Minister’s lap.

Lord Sainsbury, who has been responsible for Government policy in this direction, is the Minister for Science and Innovation, but there is nothing innovative in the legislation. It is regressive, unnecessary and punitive, and it will damage our vibrant and competitive art market. It is perhaps unsurprising that the former finance director of Sainsbury’s moved into politics; if he had allowed the introduction of such lazy legislation in Sainsbury’s, that company would not have prospered.

I shall give the Minister plenty of time to answer my questions, the first of which is: why have the Government reversed their policy on droit de suite? I pay tribute to the Prime Minister who understood the arguments at the time—although it is clear that he did not know what my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) was referring to yesterday in Prime Minister’s questions—and was
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persuaded that this was bad legislation. That is why, in the European negotiations, he was personally involved in plans to block it, but it has now come through because of qualified majority voting. The Minister may be aware—he read it out, so perhaps he is aware—that the directive requires the levy to apply only to sales above €3,000, so why have the Government reversed their policy on droit de suite? What influences have led them to come to that new conclusion?

Why did Lord Sainsbury tell the Select Committee on Culture, Media and Sport in March 2005 that applying the levy below €3,000 would mean that

    “the administrative costs become an absurdly”—

I emphasise “absurdly”—

    “high proportion of the actual payments which will go to artists”?

The Government now want the levy to apply below €3,000. Is that still absurd, or was the Minister’s noble colleague wrong?

I want to tease some answers out from the Minister. He is always a combative debater, and he started combatively today, but I hope that he will suspend his confrontational style of answering questions and give us some answers, because jobs depend on this. On what new evidence have the Government based their u-turn? Two independent surveys carried out by the Patent Office show, as my hon. Friend the Member for Reading, East (Mr. Rob Wilson) rightly pointed out, that very few British artists—189 and 173 respectively in the two years studied—would have received anything from the levy. The Minister was quick to dismiss that evidence in the same way that he was quick to dismiss other evidence in debates on the Hunting Bill. The evidence is there; why is the evidence of the Patent Office any less good than that on which he relies? It would be interesting if he were to enlighten the Committee as to what evidence he has relied on in reaching that conclusion?

Another issue—this is a fundamental point when enacting legislation—is whether the measure changes the fundamental definition of ownership in this country. I contend that it does. What is the legality of imposing a liability retrospectively? Let us make no bones about it; that is what this does. Suppose that I were a collector of 20th century British art who had built up a major collection, worth a lot of money, of the work of artists who are still alive, and that, having bought it with my own money, I owned the freehold of the collection, unless there were copyright issues; the legislation would mean that there would suddenly be a potential liability on that collection. Should I sell it, I would be obliged to pay the levy; indeed, I would be obliged to pay it at a higher level than I should have because the Government have chosen to increase it. What is the legality of their posing a liability of that nature retrospectively?

Jeremy Corbyn (Islington, North) (Lab): Will the hon. Gentleman give way?

Mr. Swire: No, I shall continue, if I may.

Where is the dead hand of the Treasury in all this? At no stage has the Minister declared whether the Treasury will be a gainer. Presumably, however, it will gain at some stage, because tax will be payable. No
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doubt, if an artist is successful and receives large royalties as a result of the directive, he or she will be liable for tax. So, what is the Treasury interest in all this?

How is the directive consistent with the Chancellor’s pronouncement in November 2005 to the CBI?

Alun Michael: I am following the hon. Gentleman’s questions with great interest, but I should like to know the position that he and his party are adopting. He seems to be speaking against the directive, rather than against the sensible way in which the Government are implementing it—as is our international obligation under arrangements agreed by a Conservative Government. Would he make it clear: does he want us not to implement the directive?

Mr. Swire: I do not like the directive, but if the Minister had been listening carefully to what I said, he would know that my point was that we are not obliged to impose the levy at the rate due to the Government u-turn, but that is what we are doing. He has increased the levy.

Alun Michael: The hon. Gentleman clearly was not listening to my introductory speech, in which I explained where we had judged each element in the statutory instrument. I ask him again, quite simply, because it would be nice to know: does he agree that the directive should be implemented? The question before us is about the way in which the directive is implemented.

Mr. Swire: If the Minister will allow me to continue, he will realise that that is what I am talking about. I shall indulge him: as a matter of principle, this is a bad, unworkable and potentially damaging law. However, we are debating not that, but why the Government are imposing the directive and why there has been a u-turn, particularly when his future boss, the Chancellor of the Exchequer, said in November 2005 to the CBI that the Government

    “will rigorously enforce guidelines prohibiting goldplating.”

The Chancellor complained of additional and unnecessary burden, which is precisely, despite the Minister’s arguments to the contrary, what the directive represents.

Alun Michael: Will the hon. Gentleman give way?

Mr. Swire: No, I will not.

Alun Michael: I did not think he would.

Mr. Swire: I will continue, because I should like to give the Minister time to respond properly, rather than to go off on a tangent, to these very important questions. I should like him to break the habit of a lifetime and give the Committee clear and direct answers.

In the case of selling a painting at a loss, the artist will be legally entitled to up to 4 per cent. of the sale. What is the logic of that? Did the Minister hear that question? I am glad, and I shall look for an answer at the end. Why are the Government extending the scope of the directive so that it is implemented more harshly in the UK than in other EU states? The Minister may
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already know about moves in France, where they are resisting the implementation of the directive at the same level at which the Government are gold-plating it in this country.

More important than all that, perhaps, is whether the Government have assessed of the cost that the directive will impose on our art market. Sotheby’s has confirmed that if it had been in effect from February 2005, its sale of contemporary, precious and modern works of art, which included paintings, drawing and sculpture, 34 per cent. of the sale by value on a hammer price of £24.5 million worth of art, and 17.25 per cent. by volume of the items sold, would have triggered droit de suite, their having been imported from outside the EU. Japanese, Swiss, Australian and US sellers will in future have no reason to choose the UK as their selling forum.

I understand that the Minister is new to the world of art, so I do not want to be so condescending as to have a teach-in, but art, by definition, is mobile, and people who own works of art are quite capable of taking them to any market in the world in order to sell them. I ask the Minister to bear that in mind. It affects my next point: what study has the Department made of the potential of China and Russia, in particular, to grow as centres of art sales and the impact that that will have on a British art market stifled by droit de suite?

Why have the Government left the British art market with so little time to prepare for the introduction of the levy? In a letter to Lord Brooke, Lord Sainsbury referred to the warning time that he had given the art market for implementation of the directive. However, that was before Christmas. The Christmas period intervened, and the art market had no idea that the Government would perform one of their spectacular u-turns with respect to the reduction of the threshold at which the right is to apply. Has the Minister taken any evidence about businesses that will be directly affected and that need more time to set up the systems to enforce the directive?

What discussions have the Government had with countries outside Europe about a universal resale levy, so that the global art market will not be distorted by its existence only in Europe? That is probably the kernel of the argument. The Minister asked whether the Conservatives were against the directive as a party, in principle. I think that the directive is unwise and unworkable, but there should be no doubt that if the Opposition felt that it would in any way alleviate the hardship of struggling artists, we should, I am sure, look favourably on it and possibly even on the threshold.

Our point, however, is a bigger one. It is that without a universal resale levy, the international art market will be distorted and may be driven to areas such as New York and Switzerland, outside the reach of droit de suite. The bigger argument is that the right will endanger the British art market, and that that in turn will have a negative effect on artists who are struggling to make a living out of selling their works of
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art. The Government have completely overlooked that fundamental argument, because they do not have an understanding of the issues.

The right is set out in national legislation. Has the Minister’s Department made a study of whether it is possible to implement the directive under Scottish law? I wonder, also, whether the right, and the holding of a residual interest other than copyright in a work of art, will affect the principle of copyright. If we examine the principle of the matter, it is difficult. Should artists have a residual continuing interest in their creation in the same way as people in other fields? The contrary view is that an architect has no residual interest in a building when it is resold at a profit. If I buy a property, bring in a leading interior decorator and sell the property at a huge profit as a result of the decoration, the interior decorator does not get a cut. Those aspects of the matter can be debated backwards and forwards.

More important is whether the Government have assessed how many charities will suffer a loss. As a case in point, I am a trustee of a fund for refugees in Slovenia, which is rather misnamed as it rebuilds the shattered communities of the Muslim population in Bosnia, particularly around Srebrenica. A lady died and left the charity some works of art, worth £300,000 plus. We did a deal for the minimum commission with the auction house, and every single penny, because the charity has no overheads, went physically to build houses for people who live out in the woods in that far-flung corner of Bosnia, whose lives have been ripped apart by war. Every penny that we got was to be covenanted and transmitted straight across to house those people. Under the gold-plating directive, a proportion of that money would be lost to the charity. Will the Minister consider that situation in due course?

In the interests of good and transparent Government, particularly given recent press interest in the role of lobbyists and their influence on Members of this House, is the Minister satisfied that DACS has not exercised undue influence? Is he aware of any lobbyist working on behalf of DACS who might have been instrumental in persuading the Select Committee on Culture, Media and Sport to hold an inquiry into droit de suite, and will he concede that it was that inquiry that led to the Government’s dithering about whether to lower the threshold? To clarify the matter, is he prepared to make available details of any correspondence and meetings between Department of Trade and Industry Ministers and officials and DACS?

If the Government are to review the directive in 2009, will the Minister agree to a rolling review by the DTI, starting immediately, so that we can monitor whether the exercise is worth the paper it is written on, and, whether the thresholds are to be changed or scrapped altogether, give companies the opportunity to avoid the fiasco that has come about as a result of the Government’s u-turn?

The directive, and the u-turn by the Government on the threshold, is bad news for artists, art dealers, the art market and UK plc. It is bad legislation, badly thought through, and, given the opportunity, we will have no hesitation in voting against it.

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9.32 am

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