Examination of Witnesses (Questions 220
- 239)
TUESDAY 9 JANUARY 2007
MR MARTIN
LEVY, MR
JONATHAN SCOTT,
MR GERRY
MCQUILLAN
MBE, SIR NICHOLAS
GOODISON, MR
HUGH STEVENSON
AND MR
WILLIAM MASSEY
QC
Q220 Helen Southworth: In terms of
the process of retaining things within the UK, what role currently
do you believe philanthropy plays in that?
Mr Levy: Insufficient, I would
say. Sadly, our greatest concern is that, of the very small number
of pieces that we would recommend to be retained, over half, by
value, are exported on average over a period of years. We get
enormous support or the system gets enormous support from independent
bodies, the Art Fund and the National Heritage Memorial Fund,
but they too are constrained by the amount of money they have
available. They also have their own agendas, so there are timing
questions and there are access questions. For example, if you
take a drawing which, by its nature, cannot be shown in public
the whole time, and I cannot speak for the decision-making process,
but if there is an onus on them to make things available to the
public, but actually that object has to be kept in a drawer for
nine months out of the year, that might preclude them contributing
towards something which we would feel should be kept. I think
another issue is the slight misunderstanding which has arisen
so far as outside funders is concerned, that the Waverley criteria
are sometimes seen to have different values, the first, second
and third criteria, the first one being so closely associated
with national life, the second one about the aesthetic and the
third one, broadly speaking, about the standing importance for
study, put very simply. Now, we do not actually see a difference
between those three criteria and all three are of equal importance,
but I think sometimes funds will say, "Well, if it is not
of national importance and if it is not so closely connected to
our history, then maybe we need not give it quite such strong
consideration". Given the nature of the Waverley criteria,
as I say, I think each of them needs to be seen equally.
Q221 Helen Southworth: You referred
when you were giving your demonstration of the Met to the very
strong role benefactors play in the US.
Mr Levy: Yes.
Q222 Helen Southworth: Can you describe
what sort of role you think they currently have in the UK and
what levers you think make the recommended difference up?
Mr Levy: I think that some of
the recommendations that the Goodison Review has made as far as
encouraging private individuals to contribute in that way, were
they to be acceptable at some stage, would be of enormous benefit
to the museums over here. I think that is one way in which extra
funding might be forthcoming. There is also, I believe, a commission
on unclaimed assets which is in process at the moment and we have
in previous reports talked about a national acquisitions fund
which has been more or less rejected, but we, as a committee,
just wonder if some of the funds from this commission on unclaimed
assets might actually kick-start just such a fund.
Q223 Helen Southworth: Do you think
there are any changes which should be made to the system and to
the Waverley criteria in particular?
Mr Levy: I think that the Waverley
system was examined in the quinquennial review which reported
a couple of years ago and it was also looked at by the Goodison
Review. Really everybody who contributed to that, I think, found
broadly in favour of the way it operated and I think it is always
worth looking at things to see if they can be changed, but it
has operated on a very simple premise for 50 years and I think
it has been very effective and it has actually had great achievements
in retaining extraordinarily beautiful and important works of
art which are retained not only for the benefit of this country,
but also attract enormous numbers of tourists during the course
of the year to our museums.
Q224 Helen Southworth: So you would
not see a need for a comprehensive review or changes to the system
at random?
Mr Levy: I do not think so personally
and I do not think the committee does, but we are here in a sense
to do what we are asked to do and I think if people felt there
was some cause to look at it, it would not be for us to say no.
I do not think anybody has actually suggested anything major that
needs to be changed and that is not working other than a lack
of funding to retain those very, very few pieces which we recommend
each year.
Q225 Helen Southworth: In terms of
potential additional funding and drawing additional funding in,
what would you think the potential was for increasing philanthropy?
Are we talking about a 10% addition, are we talking about doubling
it? What do you think potentially in the UK there could be if
we were operating well and people had good relationships develop
and were encouraged through fiscal incentives?
Sir Nicholas Goodison: You cannot
quantify it because there are no figures available yet even on
gifts of shares and land. I have asked again if there are any
figures on those because I think they might give one a clue as
to what the potential is in the other forms of gift. I do hope
very much that the Treasury and the Inland Revenue, since they
are all now in one department, might be able to produce that figure.
I do not have any doubt that there is scope for a good increase
in philanthropy in the field that we are today talking about I
say that because, during my conversations which led to the writing
of the Review, I did not only talk to the museum directors who
know their sponsors well and knew what they were thinking and
had evidence that they would be helping if they had tax concessions,
but I also spoke to potential donors who said yes, they would
see this as an opportunity So I have no doubt there is latent
demand there, but I cannot quantify it.
Mr McQuillan: It might be interesting
to make a comparison with France. In 2003, French legislation
for philanthropy changed radically and they offered 90% relief
for gifts from companies which made donations to acquire items
which had been declared national treasures, the equivalent to
the Waverley criteria in the UK, and that is already beginning
to have a significant effect and several items have been acquired
by the Louvre which clearly have been on the basis of donation.
For private individuals, the French system was changed so that
66% tax relief was given from 2003 and we are liaising with colleagues
in France to try and find out what sort of uptake there has been
of both of these systems since they were introduced in late 2003,
so there should start to come on stream some indication of how
the changes to the philanthropic regime will have an effect on
museums and acquisitions.
Q226 Helen Southworth: When are you
expecting to have that information?
Mr McQuillan: Well, it is very
difficult getting at the French Treasury system. I contacted the
French Embassy and I would hope that some time in the next few
weeks we might have this information available.
Q227 Janet Anderson: The Export Reviewing
Committee concludes that arrangements intended to protect the
national heritage are "not working as they should, above
all, due to a lack of funding", and that one of the problems
is that the system in the UK depends upon matching offers becoming
forthcoming. Do you think there is any way in which the committee's
modus operandi could be changed to overcome that problem
and to keep more of these items here in the UK?
Mr Levy: The system, as it exists
at the moment, is one that depends on co-operation from all people
involved with it, whether they are exporters, people buying things
abroad or people wanting to retain things in the UK. I think part
of the reason that it is a success, and I think it should be seen
as being successful with the exception of this percentage that
goes abroad or a broadly successful system, the idea was mooted
at one stage that, if something was stopped, the would-be exporter
should sign a binding offer to agree to sell this to a public
institution should the funds be raised. This suggestion was looked
at by DCMS and it was found, on counsel's opinion, to be a disproportionate
measure to take, so it is very difficult. There are very few occasions
on which an offer is withdrawn. There have been a number of instances
over recent years, but in the most recent years it did not happen
at all and to say it is a diminishing problem, the evidence of
the last period is that it has somewhat diminished, but the answer
is that I do not personally think that there is any way to, as
it were, pre-empt a purchase at that stage.
Q228 Janet Anderson: So you are broadly
happy with the way the system is working?
Mr Levy: I am broadly happy with
it and I think that those people who were consulted about the
system in the quinquennial review also shared that view and they
are very much the same group of people.
Q229 Janet Anderson: If we could
go back to the question of funding in your forthcoming meeting
with the Treasury, none of us has a crystal ball, but do you have
any idea as to what might be acceptable to the Treasury and do
you think that DCMS ministers could perhaps be more supportive
in pressing your case with the Treasury?
Sir Nicholas Goodison: I cannot
really answer the first part of that question, but I go back to
the Labour Party's Manifesto, which said that they wanted to encourage
philanthropy, particularly in relation to the arts. I forget the
precise wording, but there it was So I have no reason to think
that that spirit of wishing to increase the level of philanthropy
in this country is not still there, which is why I remain an optimist,
despite all the evidence, and I would be hopeful. I go back a
moment and ask why did the Chancellor introduce gifts of shares
and land against income tax? It was to encourage philanthropy,
so there is a straw in the wind there, more than a straw, a log
in the wind and it was a very good move. So I am not unhopeful.
Yes, I think the DCMS, from the evidence I have, would, I hope
and think, support, but I cannot guarantee that because ministers
change and ministers tend to call the shots on that: but I have
reason to believe that the officials are broadly in line with
what I am recommending.
Q230 Janet Anderson: So do you think
perhaps that there is a kind of window which might overcome the
problems of the erosion of the effectiveness of acceptance in
lieu when works of art cost far beyond the inheritance liability
of the owner?
Sir Nicholas Goodison: Yes, that
is a slightly different problem, but just to answer the main thrust
of your question, if I was in the Treasury, I would see two things.
I would see, first of all, a slimmer and slimmer chance of public
sector support for the arts community or the cultural community
because of the tightness of budgets and wanting to continue to
tighten budgets -we are seeing that at the moment in these requests
to national museums to consider 7% reductions in their budgets.
On the other hand, I would see a lot of private individuals becoming
richer and I would logically think that there was scope for increasing
private support to cultural organisations, and I believe that
to be true. It is the main thrust of my report, that I think we
need to encourage more private money to come into the system to
help to solve the starvation of public money, and then we need
government support, which is the title of my Review, in addition
to private giving.
Q231 Janet Anderson: So you would
still like to see government support increased as well and perhaps
particularly for the two incidents in Scotland where public money
had been put up to retain—
Sir Nicholas Goodison: Well, I
mentioned those because they were in effect Exchequer grants,
although public policy in England is not to use Exchequer grants
I just mention it as an example that there have been Exchequer
grants, despite the overall policy that was introduced some years
ago. I hope that there will be a change and I hope that we can
introduce a greater philosophy of giving in this country, as there
is in the States at the moment. If you are a rich person in the
States and a leader of society, it is thought rather odd if you
do not give money and there is a lot of peer pressure on you to
give money I would like to see that develop in this country.
Q232 Chairman: Mr Scott, are you
concerned that the effectiveness of the acceptance in lieu scheme
may be diminishing as the amounts you are able essentially to
offer in terms of write-off for tax appear smaller and smaller
in comparison with the potential yields in the market?
Mr Scott: On the whole, that is
not a problem. Over the last five years or so, we have had, on
average, 30 or so objects offered which we have recommended acceptance
of. The average market value of those has been something over
£25 million, say, £27 million over that period and the
average amount of tax that has been written off has been between
£15 million and £18 million. Now, we cannot actually,
and I am very happy to say that we cannot, influence the mortality
of owners of important objects and I would be very loth to suggest
that we should acquire such occult powers to benefit the system,
but we have not any evidence that we are missing out, as it were.
We are advertising the system in a modest way which is something
we did not do five years ago, we are publicising our report giving
details of the objects which we accept each year and, in addition
to that, we have a website which receives a very considerable
number of hits.
Mr McQuillan: There are about
40,000 a year downloadings of the annual report of acceptances
each year.
Mr Scott: And our report does
give the full mechanics of the system, an idiot's guide as to
how it works, as it were, so I think or I hope we are getting
the message across to potential users of the scheme. We are at
the moment finding that we are missing out and I think to some
extent people are getting wise to making use of tax planning and
so on for mitigating the effects of inheritance tax on some large
estates. Before, whereas there was a case when the Duke of Omnium
died, and it was a pretty regular thing, that there would be an
offering from Omnium Gatherum Castle, that does not tend to happen
nowadays and there have been, I would say, some very large ducal
deaths which have not been followed up in the way which might
have been the case five or 10 years ago.
Q233 Chairman: Given the obvious
reluctance of the Treasury to accept the recommendations of Sir
Nicholas, do you encounter any resistance on behalf of the Treasury
to your activities? Are there cases where the Treasury require
persuasion that they should accept a particular object in lieu?
Mr Scott: None at all, absolutely
none. I am pleased to say that we have excellent relations with
the Nottingham office and so on and we have no impression that
such and such is inappropriate, although there was a case about
six years ago when there was one very large case and there was
some sort of back-seat tweaking of figures which was resisted
and sensibly resisted.
Q234 Chairman: Can I ask about conditional
exemption and this is to whichever of you feels most qualified
to respond. Do you find that the effectiveness of the conditional
exemption scheme has diminished since the changes which took place
seven or eight years ago?
Mr Scott: Conditional exemption
cases are brought to us in the first instance for adjudication
and we have seen a severe drop in the numbers of cases. I find
this of concern partly because we see conditionally exempt objects
as a very good pool from which future offers for acceptance in
lieu may be given, but partly also for the fact that the process
of conditional exemption does put objects temporarily outside
the risk area for coming before the Export Reviewing Committee.
At a time when, as we are well aware, there is such a lack of
funds for important objects, any scheme which diminishes the effectiveness
of keeping those things off the `at risk' list is to be deplored.
I think that we have not yet seen or got the full impact in particular
of recent changes in the law to trusts because very many of these
objects are held in trusts which perhaps do not have anything
other than these assets to pay tax liabilities and I would be
very interested to know whether the Treasury have taken account
of that when that legislation was introduced.
Sir Nicholas Goodison: I think
that conditional exemption has kept more objects in this country
than any other single measure since it was first introduced. I
have made a number of proposals concerning conditional exemption
and Hugh's committee has taken them on.
Mr Massey: Could I just endorse
what Sir Nicholas said there. It is an extraordinarily important
weapon really in favour of preserving items in this country. If
one looks at what is done, it has been in existence for something
like 100 years and we have got now over 90,000 objects and works
of art under the conditional exemption system, accessible to the
public, kept by the owners at no cost to the nation. That must
be, it seems to me, a good system. I think the difficulty is that
with 1998, it is now perceived by owners who are thinking about
conditional exemption as an unattractive incentive because of
the burdens which are now imposed on them as a result of the changes
in 1998. If that is the fear and if that is a concern to owners,
so it is a disincentive, obviously that puts pressure on the owners
to sell the works of art and, if there is inadequate funding coming
from the nation, that obviously increases the risk of the works
of art being sold and going abroad, so it does seem to me that
it would be worthwhile to consider encouraging owners by another
look at the conditional exemption law since 1998. To be specific,
there are three changes which I think run counter to the usefulness
of conditional exemption. One is the fact that in 1998 the class
of exemptible chattels was very considerably reduced down to pre-eminent
chattels and not merely to museum-quality chattels. Now, going
forward, that may be something which the Government for the time
being may think is right, that one should not actually throw open
the doors of exemption to anything other than the most important
chattels. The problem, I think, which Sir Nicholas highlighted
in his report is that that causes an awful lot of chattels which
are currently accessible under the museum quality test and which
are apparently accessible to the public to be removed from accessibility
on the next death and they simply will not become exempted because
the standard has narrowed. That seems to me to be a pity because
quite often the collections in the great houses may have one or
two pre-eminent items, but a huge number of museum-quality items
which enhance the whole collection and actually make a very attractive
viewing experience. Now, they may also under the current rules
be exempted, provided the house is an open house, but many houses
will not be open houses, in which case they have to satisfy the
pre-eminent quality case and will not do so. Sir Nicholas's recommendation
is that nothing should be done which takes out of the conditional
exemption regime chattels which are already in it as that does
seem to be counter-productive. The second disincentive is the
one which requires the owner to provide access other than by appointment
with members of the public because this normally entails some
element of opening the house to the public and that raises obvious
security concerns to owners and they do find it extremely unattractive,
particularly those with young families, and they are concerned
about personal security as well as the security of their chattels.
They are concerned about the rising tide of burglaries because
it means them putting not only the house, but actually putting
their exact location of the chattels on the internet which is
what you might call a `burglar's charter'. I think the third disincentive
is under the new rules, the 1998 rules, the undertaking made by
the owner is inherently variable at the suit of the Revenue or
the Treasury which again is an unattractive type of agreement.
Nobody in the commercial world goes into an agreement which is
inherently variable and unilaterally variable by one side, but
not by the other. I think those two disincentives provide a great
deal of discouragement to owners and indeed the Goodison Review
Group did a survey amongst London solicitors which we have exhibited
in the evidence which shows a marked lack of enthusiasm for legal
advisers to recommend the current conditional exemption rules
for new owners.
Q235 Chairman: So to sum up, essentially
I think all of you are saying that you think the 1998 changes
had a damaging effect and that we ought now to re-visit them?
Mr Scott: I really feel that very
strongly.
Mr Massey and Sir Nicholas Goodison:
Yes.
Chairman: Do we have any other questions?
Q236 Helen Southworth: Philanthropy
has been a fairly constant theme of the evidence that you have
been giving but we focus quite closely on what either the Treasury
can do or on what museum curators can do. Can you express an opinion
about what the DCMS ministers might be able to do in a leadership
role and whether there are pivotal people within the private sector
that should be being brought into this as well?
Sir Nicholas Goodison: I think
ministers have a big role in preaching the word so I would hope
they would preach the word.
Mr Scott: There is one other very
specific area which I feel very strongly about which I am pleased
to say has been taken up by DCMS and that relates to literary
archives. It has been very noticeable that over the last six years
we have had only one major literary archive offered to us and
the reason for that is that virtually every major writer of today
has had his archive hoovered up by Texas and so on, with the result
that it would be virtually impossible for any student of 20th
century literature to be able to do it in this country in future.
I think that the initiative by the DCMS and by Chris Smith in
particular to try and rectify that situation hopefully so that
such archives can come before the AIL committee in future is something
that is very strongly to be recommended.
Q237 Helen Southworth: Are you hopeful
that you will see some big initiatives from DCMS ministers to
launch seminars and discussions and to get some excitement into
this process?
Mr McQuillan: The British Library
did a major two-day seminar in November—of course the British
Library is funded by DCMS—highlighting this problem and
bringing over curators from the American collecting institutions
and keepers from the British collections to discuss the issues
and get a common understanding of what the process is that goes
behind the American acquisitions. I think that is part of the
debate that was widely reported and reported in The Times Literary
Supplement, so there is some movement in this area.
Q238 Helen Southworth: Are people
generally happy that everything that needs to be done is currently
being done or do you want to see more being done in the next couple
of years?
Mr McQuillan: I think the problem
is with the tax regime in that the archives of living authors,
if they are sold are taxed to income tax and there are no benefits
currently—conditionality exemption and acceptance in lieu
et cetera—that can come into effect because they are taxed
to income tax.
Q239 Helen Southworth: If they sell
abroad they are taxed to income tax but if they sell here they
are also taxed to income tax?
Mr McQuillan: Yes. If they were
charged to capital gains it would be a much easier situation but
that is something we would need Treasury co-operation on or a
change in the douceur mechanism, which is only applicable
to capital taxes at the moment. If that could be applied in some
way, I am sure it is not beyond the bounds of creativity in the
Treasury to apply it in this particular instance to income tax
so the benefit goes in part to the public institution acquiring
the objects in this country and in a smaller part to the living
author, it would help remedy the advantage there is currently
in selling to America.
Chairman: Can I thank you very much.
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