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Lord Haskel: My Lords, I congratulate the noble Viscount on his Question. It is an important matter affecting not only our commercial life but also our cultural life.
As all noble Lords have said, the proposed European directive harmonising VAT and artists' resale rights is a threat to the art business--a business we must do what we can to retain.
It seems to me that noble Lords have raised two main issues: harmonisation, and the ability of Europe to compete in the world art market. As the noble Viscount, Lord Blakenham, pointed out, we are in a single market with the objective of a level playing field. As a result we shall see harmonisation of VAT on all products and services within the European Union unless we withdraw, as the noble Lord, Lord Pearson, suggested. This applies to all businesses, and many have prospered. The noble Lord, Lord Pearson, spoke of room to manoeuvre. I believe that this is a commercial matter and, under Clause 100(A), the directive will be settled by majority voting.
I find it difficult to understand why our partners in Europe should agree to our having a competitive advantage so far as concerns VAT. The noble Lord, Lord Gillmore, told us that we have these advantages, and a derogation for two more years. During that time we have benefited and we shall continue to benefit. But people in the art market must realise that this is an artificial situation which will be changed eventually. However, we have undoubtedly used this time to build up other competitive advantages. The noble Lord, Lord Hindlip, told us about the advantages of language, location and probity. We can build on other advantages: service, connections with artists and collectors, and new galleries. I am sure that we can benefit from all those in the future. In future dealers will also have to compete on the basis of their margins, as many other businesses have had to do when faced with more competition.
Of course there is a mixture of advantages and disadvantages. For instance, harmonisation has opened up the French market. I am sure that with open competition and full access, British artists will thrive and British art dealers will be able to compete in Europe.
I hope that the Minister will press for this harmonisation of VAT to lead to a simplification of VAT. We are told that there will be a review at the end of 1998, and I hope that by that time the cumbersome system of different rates for art of different ages and from different sources will be harmonised and simplified. A complicated VAT regime only encourages the VAT avoidance industry.
The noble Lord, Lord Gillmore, told us that artists' resale rights is an international not just a European matter. I agree with him. If we are to argue that on the international stage, it is probably best done at this time through the European Commission rather than by Britain on its own. I do not agree with the noble Lord, Lord Pearson. This could be a social rather than an economic matter. The Government might argue that the issue should be brought forward under the social
Harmonisation of artists' resale rights may well benefit established artists and not the younger emerging talent, as the noble Lords, Lord Freyberg, and Lord Strabolgi, pointed out. As they also pointed out, the cost of collecting and distributing this money is far too high. Somehow that needs to be altered. I wonder whether the Minister has given some thought to slotting it into the benefits system.
This is obviously an emotional matter of concern to artists, and the system of collecting and distributing the money for artists' resale rights is probably best left to local custom. It is perhaps a clear case for subsidiarity.
On competitiveness, the noble Viscount, Lord Blakenham, is right. When considering the level at which to harmonise VAT and artists' resale rights it is obviously important to consider the competitive position of Europe as against other centres such as New York or Zurich, as noble Lords have mentioned. It is no use levying a tax which destroys the business.
However, the proposed resale rights levy is on a sliding scale from 4 per cent. to 2 per cent., as other noble Lords have mentioned. This is to help deal with the more expensive works of art. In addition, the proposed VAT is at the lowest possible level, which is 5 per cent. Surely a lot of other factors will also apply, not least where the buyers are and where they would like to be. As the noble Viscount, Lord Blakenham, suggested, first consideration must be given to the buyers. There are many good social, commercial, political and other economic reasons why they would like to be in Britain and within the European Union.
The noble Lord, Lord Hindlip, and my noble friend Lord Strabolgi mentioned the United States. Of course, there are taxes in the United States, too. There is a state tax of between 6 and 8 per cent., which is tending to go up and not down. Comparisons are therefore difficult, and I agree with noble Lords that more investigation needs to be done. When discussing the level of VAT and artists' resale rights, the Government should point to the success of the British art market as proof that VAT should be nearer our levels than the higher levels which apply elsewhere.
I agree with other noble Lords that it is important to get this harmonisation right, but it is important for cultural reasons as well as for commercial reasons. Obviously, artists and dealers need each other. New artists are the seed-corn of the business and a successful art market can support new art and new artists. This will also attract buyers, and the galleries will follow the buyers. As other noble Lords have pointed out, this will lead to further economic activity.
In recognising that the new directive will have a major impact on the art world, perhaps one way of making sure that it has a lesser impact on the British art
I congratulate noble Lords on demonstrating that this is not a minor matter. It is important for cultural and commercial reasons.
I leave it to the Minister to respond to the point about withdrawing from the single market raised by the noble Lord, Lord Pearson.
Lord Pearson of Rannoch: My Lords, I did not suggest withdrawing from the single market; I assumed that we would retain access to the single market. I suggested that we should start thinking very strongly about withdrawing from the Treaty of Rome.
The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, I am grateful to all noble Lords, but particularly to my noble friend Viscount Blakenham, for giving this very important issue an airing. I am grateful to all noble Lords who have contributed for applying a most helpful expertise to the issue.
Of the many speeches that I have made at this Dispatch Box, in some respects I would regard this as the most redundant one that has been required of me. It has been perfectly obvious to me that every argument I would have sought to deploy has already been deployed. However, at the risk of being repetitive, let me set out the Government's position. I hope that, if nothing else, it will indicate to those noble Lords who have contributed the seriousness with which we take the issues that they have raised. They are all, without exception, absolutely right.
The United Kingdom art market is unique in Europe, not only because it is international but because of its size. Much of London's business is devoted to importing and selling works from third countries, particularly the United States of America and Switzerland, and re-exporting them.
The Government take very seriously concerns that value added tax and artists' resale right could damage that competitiveness. We recognise that introduction of artists' resale right into the United Kingdom could lead to sales of art subject to the right switching--this is the critical detail--not to other European capitals, but to third countries. The noble Lord, Lord Freyberg, and other noble Lords were absolutely right that the beneficiaries of this are likely to be New York, Switzerland and possibly the Far East.
I would say to the noble Lord, Lord Haskel, that I thought that in some respects what he said was disappointing in failing to grasp that this is not an issue between member states of the European Union. The issue is what will happen vis-a-vis third countries.
Sellers look to markets offering the best deal. The United States Copyright Office has already considered and rejected the idea of introducing artists' resale right into the United States. They have done so because of experiences in Europe and in California--the only state in the United States to have such a right. Switzerland, too, has decided against the introduction of that right. Why? Specifically because it wishes to build up its international art market.
The Government are well aware that the British art trade believes there is growing evidence that the seventh VAT directive is already beginning to have an adverse effect on the balance of trade in works of art and that introduction of artists' resale right into the United Kingdom would make matters worse.
In the brief time available to me, let me seek to address those issues more specifically. In reaching agreement on the seventh Value Added Tax Directive, the United Kingdom was anxious to ensure that VAT on the importation of works of art from third countries did not jeopardise the competitive position of member states in the global fine art market. Resolution of these concerns was integral to the terms on which the UK agreed to the directive. In recognition of that and of the particular position of the London fine art market, the United Kingdom was allowed--as a number of noble Lords mentioned--to apply an effective VAT rate of 2.5 per cent. until the end of June 1999 on art imports which were formerly exempt instead of the minimum 5 per cent. otherwise provided for in the directive.
What is important to appreciate, even without the 2.5 per cent. imposition, is that the Commission is committed to providing the Council with a report before the end of 1998 on the impact of that seventh directive on the competitiveness of the Community art market compared with third countries' art markets. I can assure your Lordships that the United Kingdom will take part in that review. I say to my noble friend Lord Hindlip and the noble Lord, Lord Gillmore, that we shall ensure that the views of the British art market are properly represented and any detail that can be provided to the Government will be very helpful.
I turn to artists' resale right. Eleven member states have artists' resale rights in their legislation. The interesting thing is that in practice it is not applied by all of them. The right does not exist here nor does it exist in Ireland, the Netherlands or Austria. I say to the noble Lord, Lord Strabolgi, that he is right. There is provision for this under the Berne Convention but the critical detail is that under that convention it is an optional right rather than one that is mandatory.
It would appear that the majority of member states favour harmonisation. The noble Lord, Lord Strabolgi, will recall that in April, when I replied to a question on this right from my noble friend Lady Rawlings, I indicated that the Government were far from persuaded that there was a case for the introduction of
The independent Whitford Committee, in the run-up to the Copyright, Designs and Patents Act 1988, considered whether artists' resale right should be introduced into the United Kingdom. It concluded that the right was not necessarily fair or logical and that the lesson to be drawn from experience abroad was that the right was not practical either from the point of view of administration or as a source of income to individual artists and their heirs.
The truth of those words appears to have been borne out pre-eminently in France, a country where the right exists. As a number of noble Lords mentioned, one of the French societies responsible for collecting and distributing artists' resale royalties has got into such financial difficulties that it can no longer continue. A representative of the other society--again, a number of my noble friends mentioned this point--has admitted that most of the royalties collected by that society go to a small, wealthy elite--some six families. It is the heirs of Picasso who are successful, not the starving artists in Parisian garrets. I am grateful to noble Lords for dispelling with their arguments the romantic nonsense that such a measure would significantly assist young artists. The demolition job done on that particular argument was so well done that I can add nothing to it.
The experience bears out studies made earlier this year by two distinguished economists. The studies warn against the Commission's proposal, arguing that sales of works of art subject to that right will switch from the European Union to third countries, with the majority of artists ending up worse off.
My department has submitted to Parliament its own studies on the impact of the Commission's proposal on the United Kingdom art market. They reveal that introduction of the right could, as others have said, lead to the British art market losing earnings of up to £68 million with some 5,000 jobs going. That is, if all sales of works of art in London susceptible to the right migrated to third countries. Artists would receive nothing and everyone would lose.
Even on the benign assumption of no sales switching to third countries, application of the right would yield royalties of something like £9.8 million at the most. The significant part of that would be consumed by collection and distribution costs. What remained would have to be shared between British and other European artists. The majority of British artists would probably receive little if anything. In the Government's view, the risk of the
We can only speculate at this stage on what the combined effect of VAT and the introduction of such a right would be on the United Kingdom art market. The impact of VAT will be clearer once the Commission produces its report. However, we are convinced that the introduction of the artists' resale right would do irreparable damage. There is no evidence whatever that British artists have to date been disadvantaged through the lack of that right.
We entered a general reservation on the Commission's proposal at its first reading in June. We pointed out that the art market is not internal to the Community but is world wide. We invited the Commission to provide a full cost-benefit analysis of its proposal and it has been informed of my department's studies, which I mentioned. We see no reason why member states who have chosen not to have the right should be obliged to introduce it merely because others have done so. Different countries have different needs. A better way of harmonising, in our view, would be to abolish the right altogether.
I was asked a number of detailed questions about how we might approach negotiations on the matter. Our position at the present time is this. We take a robust stance. We are not interested in discussing detail to achieve a compromise; what we are in the business of doing is persuading and explaining to our European partners that it is an ill-directed exercise that will not benefit those whom they seek to benefit.
I am conscious that I have had to rattle through my closing speech in some measure and I hope that I answered most of the questions put to me. What I am at pains to stress is that we are in a stage of argument at the present time. We do not accept the directive and we believe that the force of the arguments advanced this evening are of such a character that it would surprise me if anyone were not persuaded by the importance of maintaining the present position.
I know that on some occasions in debates such as this those who have interests to declare may do so a little reluctantly in making their contribution. This is a specific occasion where that expertise has been extremely helpful and I trust, as we go forward in advancing our arguments, that the force of the arguments addressed to your Lordships' House this evening will persuade those elsewhere in the European Union that this measure is ill-directed and the sooner it is confined to some dusty shelf for eternity the better.
Returned from the Commons with the amendments agreed to.
9.1 p.m.
9.11 p.m.
11 Dec 1996 : Column 1177House adjourned at twenty-five minutes past nine o'clock.
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