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Lord Hooson: My Lords, I asked earlier whether there was a possibility of the development association, or whatever it is called, taking equity in those companies.

Lord Williams of Mostyn: My Lords, if the noble Lord has an opportunity to read paragraph 4.6 in full he will see that various suggestions are set out. They deal with smaller businesses which are looking for less than £250,000 capital, particularly when those businesses are looking for equity and not debt. Paragraph 4.6 concludes:

The answer to the noble Lord's question is that this is genuinely intended to be a consultative paper. Any experience which the noble Lord or anyone else wishes to contribute to the discussion will be more than welcome.

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We have inherited, as is notorious because a number of noble Lords referred to it, a situation where we have a lower GDP per head, poor housing and poor health. There have been success stories, but I take as well made the point that there remain sad estates and that a child born there, it is literally true to say, has virtually no prospect of bettering himself. For parents too there is the gloomy consequence in their own minds that the normal ambition of their children having a decent opportunity for a better life than they have had does not exist. These are gross blots. We believe that they should be attended to in a Welsh context.

A good deal of Wales now, partly because of media concentration and partly because of film and entertainment, is modern. It is looking to the next century; it is confident and it is optimistic. It is confident and optimistic in a way--I entirely echo what the noble Lord, Lord Crickhowell, said--which was absent perhaps 30 or 40 years ago when we were, to our own cost and ultimate detriment, far too inward looking. A good section of Wales now is looking outwards and is proud of itself--rightly proudly of itself I say without parenthesis--but is proud of itself in a way that is not aggressive, that is not harsh, and that does not say that because England is different England is worse and that because England is different England is harmful to us. We are convinced ourselves, and we believe that subsequent history will demonstrate our conviction to be soundly based, that the assembly will offer a new regime within the United Kingdom. If I had any doubts that it might lead to the break-up of the United Kingdom I would certainly not be standing here.

We believe that the United Kingdom--I have said this before but it bears repetition--is a civilised place to live. It is capable of accommodating understanding and encouraging diversity. What Wales is looking for is a different set of arrangements. We are different. Our history is different. As the noble Lord, Lord Stanley, said, our farming regime is different in part. Our landscape is different in part. Not least, our culture and language are different. No one who speaks Welsh or enjoys a conversation with the noble Lord, Lord Geraint, in the corridor in Welsh thinks that English is any the worse for that. All we look for is a decent recognition that diversity can often be good and can sometimes improve the human condition.

We have the extraordinary opportunity that many here thought would never come. If we lose it, and if in a notional referendum in 20 years' time we get less than 50.3 per cent., it will be all our own fault. I do not pretend that the majority in Wales was as redoundingly successful as it was in Scotland. That would be folly. But that is a challenge as well as an opportunity. We must make it work. If we do not, on our own head be it. We shall revert then to the backward and inward looking Wales which the noble Lord, Lord Crickhowell, so eloquently described.

All these things therefore mesh together--the grand headline inward developments, the financial opportunities that no one could have dreamt about and the physical regeneration of south Wales which I know well because I practised in Swansea. The noble Lord, Lord Elis-Thomas, forgets that the real attraction of

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Swansea as the capital base would be that it is conveniently adjacent to Fforestfach. The fact is that five or 10 years ago we would never have contemplated that we might be having this discussion because it would all have been theoretical; almost surreal--shall it be Cardiff, or shall it be Swansea; shall we have a satellite spur, of the kind described by the noble Lord, Lord Elis-Thomas, on a video link to Aberystwyth, that centre of excellence?

Talking of a centre of excellence, I must chide myself because I failed to declare interests which are well known and recorded and have been referred to. I am Pro-Chancellor of the University of Wales and I am president of the Welsh College of Music and Drama. Both of those positions are honorific. I retain them only on the basis that I make no contact between them and the Government. That is as well stated openly. All I can say in respect of the eloquent plea of the noble Viscount, Lord St. Davids, is that what he said will be transmitted to the appropriate quarter. But he will recognise what I am about to say next with a sense of gloom, descending on his heart with a chill. The appropriate authority is really the HEFCW in the first instance. I shall see that that is transmitted, but I wish to make our own position perfectly plain.

Those are the strands: the headline developments, the centres of excellence at the university, the farming community, the language. I cannot entirely agree with the noble Lord, Lord Crickhowell, that previous Conservative governments have always been at the forefront of protecting, developing and enhancing the position of the Welsh language. Occasionally, some of us fairly thought that it was too little, too grudging and too late. But there we are.

We have new opportunities now. Five hundred thousand people are speaking the language. Young people are interested in it and are producing pop music and films of the highest possible quality in it. S4C has done fine work, despite its unfair critics and despite its uninformed detractors. We have these opportunities not only to be Welsh but to be European, to recognise fully that we are not--I take this graphic word because I have not heard it before--the sidecar of England and we are not the sidecar of Europe either. We want to be what we can be--a full nation, attending to our own affairs within the proper parameters of them, grateful to be within the United Kingdom but recognising that we are part of a greater western civilisation which presently calls itself Europe.

6.10 p.m.

Lord Crickhowell: My Lords, it would test the patience of this House considerably, particularly after the excessively long Statement that we had earlier in the afternoon, if I were to add very much to what has been said during the course of this debate, except that I would like to thank all noble Lords who have taken part in it. In particular, I would like to thank the Minister for his courteous and considerate reply. I would add only one other comment. He spoke of his confidence in the future role of the assembly. He thanked those of us who said that we now accepted that there was to be an assembly.

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But it must be strong and effective. I beg him and his friends in government to listen most carefully to the criticisms and anxieties that we and others have expressed and will express further, because that assembly will only work and gain the confidence of the people of Wales if it is structured on the basis of full consultation with and consideration of all interests and with a willingness to listen and to amend. Having said that, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

International Art Market

6.11 p.m.

Lord Hindlip rose to call attention to the importance of London's leading position in the international art market; and to move for Papers.

The noble Lord said: My Lords, I must declare an interest as chairman of Christie's, currently the largest auction house in the world. During the 35 years that I have worked there London has had a thriving art market. It is in serious danger of losing it. But this debate is not a narrow issue about London; it is about a world market, about Europe and how Europe should seek not to disadvantage itself against the rest of the world and particularly against America. The British Art Market Federation recently published a report which has prompted my Motion. We must all welcome the Government's response to it. The Department of Trade and Industry's press release of 11th November was, as far as it goes, very encouraging.

The report shows that the British art market comprises 10,000 businesses; it employs 40,000 people; it turned over last year £2.2 billion; it contributed over £450 million in taxes and £250 million in revenue to restorers, framers, insurers, printers, shippers and other peripheral industries. It also encourages foreign visitors. It may come as a surprise to noble Lords to learn that the art market, according to the DTI's own figures, rates ahead of concerts, opera--it is a lot cheaper and less controversial--ballet and sport and is the prime reason given by visitors for coming to Britain.

The report paints, on the one hand, an encouraging picture of an industry which benefits both the cultural and economic life of the country and one in which British firms dominate the world market. On the other hand, it points out two serious threats. They are, first, VAT on the importation of works of art and its proposed increase and, secondly, the introduction of artists' resale rights, or droit de suite, as it is known in France.

VAT was discussed in your Lordships' House a year ago. But the position is worse than it was then, as the figures will show, and the time to remedy it is even shorter. When Britain joined the EEC the Government agreed to levy VAT on auctioneers' commission and on dealers' profits but not on the works of arts themselves--the so-called "margin scheme"--with a zero import tax. They recognised the global nature of the art market and the damage that restricting it with an import tax would do. However, the seventh directive on the harmonisation of VAT introduced a tax on the

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import of works of art into the Community. As the country with the only major art market, the United Kingdom was allowed a lower rate of 2.5 per cent. import tax, to be raised to a minimum--I stress "a minimum"--of 5 per cent. in 1999.

Since that tax was introduced, even at 2.5 per cent., imports of works of art into Britain from outside the Community have almost halved. If that trend continues, in two years' time there could be almost no imports whatsoever. While this decrease is not wholly attributable to the introduction of VAT on imports--there are other factors--it has been a major contributor to this decline in trade. The further increase to 5 per cent. will do more and irreparable damage. What is worse is that this decline comes at a time when there is a perception that Europe as a whole, and London in particular, is nothing like such a good marketplace as America.

I need hardly remind your Lordships that VAT is a complicated tax. No harmonisation will simplify it. And it is one which many of our foreign consignors do not understand. If there is a choice--and there is--where to buy or sell a work of art, we know that clients will choose the freer option: they will go where VAT does not apply. That provides a European collector with a positive incentive not to bring his purchase to Europe but to keep it at an address overseas. It seems particularly ill-advised, when all European governments are worried about the export of works of art, that they are busying themselves ensuring the export of the entire market. Our industry, like all responsible businesses, realises that government have to raise revenue, but the European Commission ought to understand that VAT on the import of works of art works against that end as less and less will be sold in Europe.

The only other country with an international market is France, but so little do the French Government understand the international nature of the market that all foreign auctioneers, including those from other EU countries, are still barred from holding sales in France. The promised legislation to open up the French market has yet again been postponed. I hope that the Minister will address what he said last year, which I know he sincerely believed. He said that harmonisation has opened up the French market. It has not.

Will the Minister also tell us whether he can use the review on the effect of the seventh directive on the art market which has to take place by the end of next year, and also our presidency of the European Union, to press for us to revert to zero import VAT which will ensure that business continues to come into Europe as a whole?

The second threat to the London market is the proposed introduction next year of artists' resale rights (droit de suite). The rate proposed by the European Commission varies from 2 to 4 per cent. Needless to say, this droit de suite does not apply either in the United States or in Switzerland. Britain again will be the biggest loser. We will be the hardest hit.

I shall not repeat the points made in your Lordships' House last year by the noble Lords, Lord Strabolgi, Lord Gillmore and Lord Freyberg. I expect that they will

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make such points again--and much better than I can. However, I repeat that the people who will suffer from this imposition are the smaller European dealers who do not have offices and premises in the United States through which they can negotiate sales that will probably take place in Europe.

What can the Government do to help? Last year my noble and learned friend Lord Fraser of Carmyllie, speaking from the Front Bench, said on 11th December:

    "this measure is ill-directed and the sooner it is confined to some dusty shelf for eternity the better".--[Official Report, 11/12/96; col. 1178.]

Sadly, it has not happened, although it clearly should.

The introduction of droit de suite is not a fait accompli. Last year the Minister said that this is perhaps a clear case for subsidiarity. The noble Lord was absolutely right and I ask him whether he will confirm and expand on that point later. Can the Minister also, in his discussions with his European partners, emphasise that there is absolutely no point in having a level playing field in Europe if no one other than Europeans wish to play on it and if the whole international art market is driven from Europe to America?

That would be a sad example of Europe's failure to consider global competitiveness when legislating for a European market. The price of failure will be that the best creations of European art will be sold outside Europe and they will never be brought back. That is surely against the interests of the whole of Europe culturally, economically and politically. To prevent that happening is a cause worth fighting for. My Lords, I beg to move for Papers.

6.22 p.m.

Lord Sandberg: My Lords, in a previous incarnation as chairman of a bank I made my maiden speech to my shareholders at their annual general meeting--and I viewed it with far less trepidation than I do this maiden speech in your Lordships' House. I was then able to promise an increased dividend, a bonus issue and an optimistic future to cover my shortcomings. Here, I can only appeal to your Lordships' tolerance. Perhaps I may say how very much I appreciate the tolerance that I have already received from your Lordships and the staff. All have treated my requests, as a new boy, for information with nothing but kindness and helpfulness. I am most grateful. I had heard of the courtesies of your Lordships' House before, but needed to experience them to appreciate them fully.

I do not pretend to have the depth of knowledge of the noble Lord, Lord Hindlip, on the position of London as an international art market, but I do have some idea of London as the repository of an enormous number of treasures of all sorts and as a traditional market place for art. When I was a student--alas, many years ago--London was not only the capital of a vast empire and a financial centre par excellence, but it was also regarded as the world's leading art market. What, for instance, in those days could compare with the British Museum, which was even mentioned in song by those eminent Americans, Ira and George Gershwin? Can anyone imagine substituting the words "The Smithsonian

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Institute" in that song? Who then could stand up to the London auction houses of Christies and Sotheby's? Now, I am told that New York auction rooms account for 40 per cent., and growing, of the world's art sales while London accounts for 30 per cent., and falling. We need in this country to be globally competitive and for London to regain the leadership that it has traditionally commanded.

I am afraid that I shall have to repeat some of the points already made by the noble Lord, Lord Hindlip. It seems to me that we must look carefully at two impositions on the art market. The first was levied in 1994. I refer to the introduction of VAT at 2½ per cent.--not very much, one might think, but I shall try to show the negative effect that that has had. Although there is a sales tax in New York, it works quite differently from VAT and can in any case be vitiated by such entirely legal means as after-sales purchases. There is no VAT as such in New York. We shall soon have to brace ourselves for a review by the European Commission in 1998 of whether the 2½ per cent. should be increased to 5 per cent. or, almost unbelievably, to an even higher percentage. Traditionally, as we all know, reviews of tax generally lead to increases.

Now we are faced with the other levy to which the noble Lord referred, droit de suite. It entitles visual artists to take a percentage every time their works are sold and on-sold while their heirs continue to have that benefit for 70 years after the death of the artist. Droit de suite to a living artist can, I suppose, be seductively argued to be something which is due to a visual artist--that is, to a painter or a sculptor. However, the fact is that such an artist is paid in full when his work is sold, as opposed to, say, an author or musician. An author has to rely on royalties on each book sold. He does not receive any more if his work is sold a second time, perhaps in a second-hand bookshop. In other creative fields, an architect does not expect to receive extra payment if the building that he has designed increases in value. In any case, I am told that in most instances the administrative cost of such a scheme is so high that very few artists--certainly, very few of the needy ones--receive any cash at all. It is estimated that in France, where droit de suite, as one might understand by its very name, is collected, the vast majority of such money is divided among only six families in the whole country.

The European Commission is now proposing a directive which would make droit de suite mandatory throughout the EU at a rate of 2 or 4 per cent. If such a levy were to exist here, it would be more advantageous for some 90 per cent. of the Impressionist market and not far short of that percentage of the value of contemporary art presently sold in London to be shipped for sale in New York or Geneva where, naturally, such a levy does not exist.

Perhaps I may give your Lordships some idea of the size of the London market and of what it is worth, not just in terms of money but of employment. It surprised me to find that nearly 40,000 people are employed in this country in the art market, which has a turnover of £2.5 billion annually, as your Lordships have already

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heard. Another surprise is the number of visitors to our shores who have given the art market here as one of the main reasons--frequently, the main reason--for their visit. Two years ago, in 1995, those art lovers spent nearly £3 billion in this country--not only on art, of course. I do not see any reason to think that that figure has declined. Your Lordships can imagine the benefits which the tourist industry, not to mention the Exchequer, has already gained.

But--and this is a big "but"--since the apparently small VAT rate of 2½ per cent. was imposed, imports of fine art into this country have fallen by no less than 40 per cent. as people around the globe have looked to other markets for their sales and purchases. That loss has been mainly to the market in New York and, to a lesser degree, to that in Geneva. Indeed, the import of goods from Switzerland and the US because of the imposition of VAT has decreased by 65 per cent. and by 17 per cent. respectively between 1994 (when VAT was first imposed) and 1996.

Harmonisation of tax and other levies is something at which we should all aim. I am not suggesting that we in Britain should have some favoured position in Europe, but we need globally to have that overworked phrase--we have heard it several times today in your Lordships' House--a level playing field. We do not have a level playing field at the moment and I hope--I urge this on the Government--that we shall strive to ensure that the European Commission looks carefully before imposing droit de suite. Similarly, I hope that the Commission will look carefully at the question of VAT on art. I should like to see not only no increase but an abolition of this self-defeating tax before our playing field has a slope as notorious as that of Lord's. Of course, I refer to the cricket ground of the MCC, not this revered House.

I am most grateful that I have been allowed to speak on what I believe to be an important matter to this country.

6.30 p.m.

Baroness Rawlings: My Lords, the honour falls to me from these Benches to congratulate in the name of the whole House the noble Lord, Lord Sandberg, on his maiden speech. It was outstanding by any standards. He had no need for trepidation. But this does not come as a surprise to anyone who knows the noble Lord or has studied his curriculum vitae. He is a most distinguished new Member of your Lordships' House, with a remarkable banking career and many other accomplishments behind him. He was chairman of the Hong Kong and Shanghai Banking Corporation--the largest bank in the world--and the British Bank of the Middle East. He was a member of the Hong Kong Executive Council and treasurer of the University of Hong Kong. He is a Fellow of the Royal Society of Arts, Freeman of the City of London and Liveryman of the Company of Clockmakers. In addition, he is a notable sportsman as steward and chairman of the Royal Hong Kong Jockey Club and a member of cricket clubs, including the MCC and the Surrey CCC. This is a career of extraordinary achievement which is all too evident from his excellent speech today. We all hope that he

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will play a prominent part in your Lordships' House and that we shall hear a great deal more from him on this and many other subjects.

Before making my modest contribution I thank my noble friend Lord Hindlip for giving your Lordships' House this timely opportunity on the eve of the British presidency to hold this debate. I too pay tribute to my noble friend for his superb and unsurpassable mastery of facts and arguments in this notoriously complex matter. I cannot but endorse his arguments. The statistics are by now well rehearsed and I declare the next few minutes to be statistics free. However, I should like to emphasise that this is not an issue which divides your Lordships' House; nor is it an issue where Britain is the odd man out, fighting to hang on to some peculiarity. It is a truly European issue, with the Commission's inclinations and the narrow national interests of some member states both conspiring to damage the whole of Europe. If Britain loses this battle the whole of Europe loses it.

As an MEP I followed the convoluted and tough negotiations on this subject in the early 1990s, so I am well aware of what a thorny issue it is. Britain succeeded in persuading the Commission and the other member states that sales of works of art required special VAT treatment by way of the margin scheme, but it failed to win the argument that imports of such goods should be exempt from VAT. The Commission's initial proposals recognised the importance of such exemption but then succumbed to fiscal purism. The compromise solution of a concessionary rate over a limited period only rather than an unlimited period was a thinly disguised climb-down.

The Commission in pursuing the completion of the internal market--very much a British initiative--is now driving harmonisation towards an ideal of clarity and consistency which does not sufficiently take into account our real interests. Other member states perceive the concessionary VAT rate applied by this country and the absence of droit de suite as discriminatory, and by pursuing their narrower interests lose sight of the larger picture. The British Art Federation, so ably chaired by Anthony Browne, has kept the vital importance to our economy of the British art market in the public eye. I am grateful to him for his relentless efforts.

The increase of VAT on imports to 5 per cent. and the introduction of droit de suite would destroy the British art market and the European art market too. The British art market is by far the largest and the only truly international one in Europe, so the effect of these rules would be to divert works of art on to the Swiss and US markets. Both still enjoy more favourable tax regimes than we do. It would also discourage the repatriation of works of arts to Europe, not just the conservation of the European cultural heritage. It would also damage London as a magnet for high spending foreign visitors.

I welcome what the Government have done so far and encourage them to persist in this line. It is in tune with the priorities of the British Presidency, which are to improve the employability of the European workforce and at the same time not impose costs on business, as the Prime Minister said last Friday. In particular,

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perhaps the Secretary of State can press the Commission to link its review of VAT arrangements with an impact study of droit de suite at this crucial stage of the European legislative process. We should encourage him to pursue the fight against the introduction of droit de suite by forging alliances with those who want to repeal it in their own countries and by convincing other member states that it damages artists, museums and collectors as well as the arts trade. It is a battle for the concessionary VAT rate not to be a temporary British privilege but the European norm.

The Secretary of State has taken up the challenge of making London not just a world city but the world city of the new millennium. If the Government are true to these words they will fight these battles with the utmost determination and our full backing. I therefore urge the Government to view these issues together, because in this case what is good for London is good for the country and Europe.

6.37 p.m.

Lord Naseby: My Lords, it is a little strange for a parliamentarian to confess that this is his first speech for about six years. Your Lordships will know that in my previous incarnation speeches were most definitely not in order for the post that I held. My task was to keep order and somehow to make progress. The mention of "order" causes me to reflect on the joy in your Lordships' House to find that self-regulation works. It is a joy to see no lack of action or conviction on any of the Benches but a sense of common courtesy and fair play. As a newcomer I welcome that enormously.

I believe that I am the first Lord Naseby. Naseby is a village in Northamptonshire and the site of a battle of direct relevance to the debate this evening. Your Lordships will be aware which side won. Your Lordships may also know that the wounded from all sides of that battle went to Northampton, a town that I had the privilege to represent in another place for 23 years. Noble Lords will recall that that battle was the turning point in the Civil War, probably leading directly to the rise of Cromwell to a position of power. If one looks back on that time perhaps one can argue with conviction that it was Cromwell who created the London art market. It will be recalled that there was the Sale of the Century: the Commonwealth sale, the particulars of which were prepared some three weeks after the death of King Charles I.

If one reads the recordings of that time, one will see that the logic of the sale was to a certain extent irrefutable. The king had expensive debts which legitimately someone should meet. And of course in the words of those days, which ring so true today, there was a need also for funds for public uses, at that time of the Commonwealth, or public uses for the Exchequer, as we would recognise today. The Act to allow the Commonwealth sale to go forward was passed on 26th July 1649.

No one knows what were the total proceeds of that sale, but they must have been in the order of some £50,000 at prices prevailing then. That would be the equivalent of something over £½ billion today--just

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think of the commission and VAT on that sale! The proceeds were far, far in excess of the record sale of old masters which took place a week ago at Sotheby's which I understand amounted to £29 million.

There were many lots in that earlier sale. There were 1,500 pictures and other items. Some were negotiated, some bid for and some sold sight unseen. If one wants to see the best pictures today one has to go to Vienna, the Louvre and the Prado. They are the pictures which used to reside in this country. Thankfully, some remain in our great museums and galleries.

So much for that period. Another fillip was given to the art market by Her Majesty Queen Victoria when, to celebrate her jubilee, she said that she just wanted to see recorded in written form the history of our country; and in particular the Victoria County History of the counties of England. It is commonly known today as the VCH. I am proud to be the chairman of Northamptonshire VCH and now to be on the national committee of that organisation. I pay tribute to your Lordships' House for amending the National Heritage Bill last November so that the VCH could be eligible for lottery money. I hope that when it comes to apply for a lottery grant it will be successful.

As we have heard this evening, today's art market faces another challenge. In a previous incarnation--again, long before I was in politics--I was in advertising. I was a director of the advertising agency responsible for the advertising for one of the big four auction houses. We prepared advertisements and catalogues. I remember discussing with the directors of that house just how sensitive a market the art market can be. There is no market more sensitive to changes than the art market. Therefore that market, and the pressures it faces, should be taken extremely seriously by everyone in this land.

None of us should forget that it is not just direct exports of our manufactures which are so important; it is the money earned by way of invisible. The art market, and the work done by the many people in it, is a prime source of invisible earnings. Other noble Lords have explained in detail the threat from New York and Geneva. I shall not go into any of that detail. We face the threat of a rise from 2.5 to 5 per cent. on importation and the levy of the droit de suite.

I entered politics--in a phrase--to try to right a few wrongs. To that ambition I would now add, to prevent going wrong something that is going right. I urge Her Majesty's Government to continue to resist the proposed changes which will so adversely affect the London art market.

6.45 p.m.

Lord Strabolgi: My Lords, it is a great honour, on behalf of the whole House, to congratulate the noble Lord, Lord Naseby, on his highly interesting and brilliant maiden speech. It is one which managed to be non-controversial, in accordance with the traditions of this House. As we know, the noble Lord has had a most distinguished career in another place as the Member for Northampton, South for nearly 25 years, I think,

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culminating in being Chairman of Ways and Means and Deputy Speaker. I have had the pleasure of knowing the noble Lord for many years. I would like to renew my congratulations, as one of a panel of Deputy Speakers, to someone who has been the Deputy Speaker, and to express my hope that we shall hear from him on many future occasions.

I am sure that we are grateful to the noble Lord, Lord Hindlip, for tabling this important Motion for debate. As the noble Lord said, the UK art market is the most important in Europe. It is second only to New York in the rest of the world. The market in fine art and antiques brings into the Exchequer about £500 million a year in taxes and VAT. It employs about 40,000 people.

When VAT on domestic sales became necessary some years ago, it was agreed, mainly on the instigation of this country, that that would be levied only on the auctioneer's commission or the dealer's profit margin and not on the selling price. That arrangement is accepted by all. Before February 1994 there were no import taxes, as the Treasury agreed, very sensibly, that a free market was greatly to the benefit of the UK economy. We are now obliged, at the behest of our European partners, to levy VAT at 2.5 per cent. of the eventual hammer price on all art imports for auction. That is to be increased to 5 per cent., as the noble Lord, Lord Hindlip, said, after the end of June 1999.

The VAT of course is refunded if the item is bought by a foreign buyer for re-export but not if it is sold to a buyer in this country. That imposition must surely be a disincentive to EU collectors to bring back some European works of art from overseas. We hear a great deal about the drain of Europe's heritage to the rest of the world, in particular to the US, and one would have thought that any encouragement for collectors here to bring back works of art from the US would be something to be commended.

The policy assumes that a level playing field will allow our European colleagues, mainly the French, to have a better chance of competing on the American market. It will not work out like that. The result will be--I stress this in particular to my noble friend Lord Haskel who is to reply--that the EU will lose out altogether. Sales of highly important paintings will move to New York where there is no import VAT and no droit de suite. Freight costs across the Atlantic will often be less than any droit de suite levied here.

Why should a Swiss collector, for example, send his important Impressionist paintings to London or Paris when he can have them auctioned in New York or Geneva without extra taxes? I emphasise therefore that it is not a case of European countries competing against one another, but of Europe as a whole, shackled by taxes, competing against the US.

That is not all. There is an additional threat, as has been said. The European Commission has proposed a directive to make droit de suite applicable to all sales throughout the Community at rates between 2 and 4 per cent., depending upon the value of the art work.

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That is a romantic, if somewhat naive, attempt to help young artists at the beginning of their careers. I doubt whether they will get much out of it. On a £1,000 painting, which is what a young artist can expect to receive, the droit de suite of 4 per cent. will be only £40, from which will be deducted the collection costs of 40 per cent., leaving about £25.

However, when we come to the heirs of some of the greatest artists of this century, whose paintings fetch vast sums, the situation is very different. An important Cubist painting, for example, selling at about £2 million--I am sure that the noble Lord, Lord Hindlip, will agree that that is a conservative estimate for some of the important paintings of that period--will earn at 2 per cent. a droit de suite of £40,000. That is repeated each time the painting is sold during the 70-year copyright period, to the considerable further enrichment of the heirs of the artists' estates. Those families are already extremely rich. I believe that in France 75 per cent. of the droit de suite collected went to only six families.

At present, the United Kingdom does not operate this levy. I am informed that had it existed in 1995 it would have been financially more advantageous for 90 per cent. in value of the Impressionist market and 85 per cent. in value of contemporary art sold in London that year to have been shipped for sale in New York. Imports of works of art for sale here have fallen by 40 per cent. since the introduction of import VAT and there will be a further fall if that is increased to 5 per cent. Droit de suite in this country would lead to a loss of £68 million in revenue and 5,000 people could lose their jobs.

I understand that the European Commission is to conduct a review for the Council of Ministers of the VAT directive and its impact on the art market and to report before the end of next year. I should be interested to hear from my noble friend what representations have been made by the Government. This is not a party matter in any way. The previous government stood firm against these ill-considered proposals--and I speak as a staunch pro-European--and I hope that the present Government will be equally resolute.

6.53 p.m.

Lord Renton: My Lords, the noble Lord, Lord Strabolgi, has enabled me to shorten my speech by emphasising the economic and financial factors which arise. They have been so well deployed by my noble friend Lord Hindlip, the noble Lord, Lord Sandberg, and others.

I join the noble Lord, Lord Strabolgi, in his references to the maiden speech of my noble friend Lord Naseby. It is a convention of the House to congratulate maiden speakers only once, so I must not be accused of congratulating him. However, it was a pleasure to hear him refer to a former Member for Huntingdon, Oliver Cromwell. He was a Member for only a few years because he had an awful row with the burgesses of Huntingdon and was driven to become Member of Parliament for the City of Cambridge.

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I was interested in the slightly provocative statement of my noble friend Lord Naseby that Cromwell created the London art market. We are all keen Royalists, but sometimes the truth must come out. Cromwell's effort was pretty disgraceful. He put up for sale the wonderful collection made by King Charles I. I am glad to say that some years later it was gradually restored, especially by that unusual king, King George IV, mainly when he was Prince Regent.

Perhaps we may consider the background to the London art market. We in London have probably the best collection of picture galleries in the world and that must attract the large number of visitors who come here. They spend money not only buying pictures and other works of art and antiques but on being in London and visiting galleries which may have to charge for admission. However, I am sure that such galleries are an attraction. In addition, we have wonderful museums. The British Museum is the most famous of its kind in the world. We also have the Natural History and Science Museums, the Imperial War Museum, the London Museum and many others. They all attract visitors from abroad and help the balance of payments.

If the London art market were without that background, surely it would not be so successful. Therefore, culturally, artistically, commercially and economically, we in Parliament should be anxious to help that market to succeed. Clear and convincing reference has been made to two main threats. Luckily, they are as yet only threats, although one has begun to have a bad effect. As regards our financial policy, the Government must be careful what they do about VAT. As regards European harmonisation, I wish to dwell on the issue because, although it appears to go wider than the debate, it is a serious matter which affects the London art market and many other factors.

I have always taken the view that the original six nations which signed the Treaty of Rome had so much cohesion and economic contact that harmonisation, financially and otherwise, could do them no harm. However, the European Union now consists of 15 nations with 11 different languages and many different cultures, if one dare use that word from this side of the House. I believe that harmonisation has become a menace and that we must be firm in our resistance to any kind of harmonisation which adversely affects our economy or our heritage. I hope that the Government will take on board what has been said about that.

I am pleased to be able to turn over four pages of my notes because the points have already been covered. In conclusion, I believe that Members of your Lordships' House deserve congratulation on the help given to our art and culture by initiating the legislation which increases its strength and protection and is a benefit to our art market. I refer in particular to the Treasure Act 1996, which applies to England, Wales and Northern Ireland. It did not apply to Scotland. The Bill was introduced by the noble Earl, Lord Perth, and we should be grateful to that Scottish nobleman for what he has done for England, Wales and Northern Ireland. He replaced the ridiculous ancient law of treasure trove, and doing so will be of great benefit. Furthermore, in 1994

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we abolished the ancient defence of purchase in market overt, which was a thieves' charter. Modesty prevents me from mentioning who introduced that Bill!

The Government have a heavy responsibility to follow the advice given by your Lordships in this debate, as on so many other occasions.

6.59 p.m.

Lord Freyberg: My Lords, I too would like to thank the noble Lord, Lord Hindlip, for drawing attention to what may be the last opportunity to save the British art market by persuading our European counterparts not to impose for ideological reasons two disastrous new charges that would benefit no one but the American and the non-EU art market.

That is not melodramatic. The British art market is a huge one, worth some £2.2 billion a year, but it is at a major crossroads: hundreds of years of connoisseurship and competitive trading have been seriously eroded in just three years since the seventh directive imposed an interim charge on works of art sold in the UK. Our share of the international market is on the brink of being damaged irreparably. The evidence is compelling and extremely disquieting.

As we approach 1998, the year of our presidency of the European Commission, I urge the Government to take this opportunity to engage our EU partners in a proper dialogue to convince them that it is better to maintain London as Europe's centre of excellence in the art world rather than to destroy its dominant position simply for the sake of "harmonisation".

Already, there is alarmingly clear evidence that the 2.5 per cent. VAT imposed in 1994--half way to the proposed 5 per cent.--has driven a large number of art vendors away from London to non-EU countries with no such tax to sell their works. Since 1994, as the noble Lords, Lord Hindlip and Lord Sandberg, have pointed out, the amount of works of art imported into Britain by non-EU countries is down a staggering 40 per cent. Of the two biggest markets, imports from the US declined by 17 per cent. and imports from Switzerland by a massive 64.6 per cent.--together a drop of more than £200 million.

The European Commission is impatient that we raise our import tax to 5 per cent. forthwith or it will take legal action. Yet it knows that Britain has the only international art market in Europe--worth some 60 to 70 per cent. of the entire European art market--and that refusing to recognise the loss of trade so far risks allowing it to drop still further. It suggests too that the Commissioners have forgotten that one of the reasons for our securing an interim tax arrangement was so that its effect on the market could be monitored: if it proved as disastrous as feared, then the whole matter could be rethought. Sadly, the interim tax has had a severely detrimental effect. I hope that the Minister can confirm this evening that the Government will do all they can to stop the forced implementation of this very destructive tax from continuing. Furthermore, in the past year, major, long-established art dealers have deserted London for New York.

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It is worth emphasising to the Government how much money is at stake. London, once foremost in the international art market, is now second to New York--even so, as the noble Lord, Lord Strabolgi, has said, its £2.2 billion turnover last year netted nearly £½ billion in taxes. By comparison, the music industry is currently valued at £1.6 billion.

There are just a few cities in the world where the art market has developed sufficiently to accommodate the biggest sales of such major players as Sotheby's and Christie's. The two largest centres in recent years, London and New York, have up till now both been largely free of red tape. The new import tax of 1994 and the threat of more to come has changed all that. There has in the past couple of years been a significant shift to New York. The new taxes give New York an immediate edge over London.

As if that were not enough, the UK art market faces a second threat from Europe in the form of droit de suite. That seeks to award royalties to artists every time their works are resold. As America has no droit de suite and no intention of introducing it, it too would give sellers a further incentive to go to America rather than Britain and further reduce Britain's ability to compete internationally.

That proposal, put forward on 13th March 1996 and due to be implemented by 1st January 1999, entitles the author of a work of art (or his heirs) to a percentage of its price when it is resold by public auction or through an agent, regardless of whether it makes a profit. The EU wants Britain to impose that levy to eliminate differences in resale laws throughout the EU. At present droit de suite exists, at very different levels, in 11 out of 15 countries, although only eight of them enforce it. Only the UK, Ireland, Austria and the Netherlands have no form of resale rights.

The directive affects the contemporary art market, involving works by artists whose death occurred after 1927. It would, in theory, affect any work I sell over a certain price--and here I must declare an interest as a sculptor. The threshold at which the levy becomes applicable is 1,000 ecus, currently £669; this time last year 1,000 ecus were worth £757--almost £100 more, and an indication perhaps of complications to come. Thereafter it would be levied at a rate tapering from 4 per cent. to 2 per cent.

Although in principle living artists would benefit, in fact a vast proportion of droit de suite would go to the family of a handful of the best known (and chiefly dead) artists: in France, as the noble Lord, Lord Hindlip, and others have stated, 75 per cent. of the droit de suite levied goes to just six families--Picassos and Matisses and their ilk--who are already richly rewarded by a competitive art market.

Had droit de suite been in force last year, some £372.8 million worth of goods would have been subject to it and some £65 million of earnings would have been at risk. However, in reality the amount at risk is likely to be much higher. According to research carried out by two leading auction houses, approximately three-quarters of the items eligible for droit de suite

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were consigned by vendors outside the EU. With droit de suite, selling their work in Britain would be a less attractive prospect.

The items that attract the droit de suite levy are those that tend to attract international buyers and sellers to the UK market in general; namely, 20th century art. With the harmonisation of droit de suite levies throughout the EU, non-EU consigned business would be most at risk. If this trade were lost, it is likely that the UK market would become almost entirely a domestic one. There would also be a knock-on effect on the £2.8 billion value of expenditure by foreign visitors in the UK.

The rationale behind droit de suite is the EU's policy of favouring a high level of protection for intellectual property right holders in order to promote creativity. This directive aims to put artists on a par with authors and composers who earn royalties from their works whenever they are reprinted or played in public.

But the possession of a work of art is not a matter of performance as music is or literature may be. There is no parallel. Artists are established by their patrons. It is their willingness to put their hand in their pockets that establishes an artist's reputation. Their immediate reward is their personal and private enjoyment. They do not exhibit these works of art to their friends for a fee. They make no money on them. They may have to pay considerable sums on their conservation. They care for them and insure them. If they are of any interest, they will be asked to lend them to an exhibition for which they receive no benefit; though the exhibitors may benefit.

And when eventually for one reason or another they are sold, they may make a loss. Where is the justice in droit de suite? And if it makes a handsome profit it is most likely because the painter is world famous, like Hockney or Freud, and himself far richer than the patron who bought his early work. Hockney and Freud do not need a droit de suite. But droit de suite will be of no benefit whatsoever to the artist who throughout his lifetime sells for a modest thousand or two. Such an artist would be lucky to receive the £40 maximum on the resale of a painting for £1,000.

The levy is difficult and expensive to administer. The British art market has estimated that if droit de suite had been payable in the UK in 1996, it would have cost in the region of £2 million to collect some £9.9 million.

We want to encourage more trade not less. However, if the Government are not prepared to fight hard for the British art market and its unique position in Europe, much of the British art world, with all its peripheral benefits, will disappear for good. I beg the Government to do all they can to prevent that from happening.

7.9 p.m.

Lord Inglewood: My Lords, I must congratulate my noble friend on setting the scene for tonight's important debate by clearly identifying that the issues we are discussing are essentially European, albeit issues which have a very strong British interest. It is well known that VAT owes its origins to the Community, while intellectual property is an essential part of the single market. Of course, that includes the droit de suite.

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We have already heard this evening about the relationship between the European art market and the world market and how the former is but part of the greater one. Within the European art market the trade itself is peripatetic. After all, while today London is its centre, once upon a time it was Paris and before that it was, I believe, Antwerp. I want to see London remain one of the leading centres of the art trade, in the United Kingdom, in Europe and in the world. I believe that it is in the UK's interest for it to be so. But if, on the famous level playing field, let us say, Athens, Lisbon or Helsinki were to compete more effectively, I would say "Good luck" to them.

What seems to me to be beyond argument and cannot be in Europe's interest is for the EC so to legislate that it destroys London's position in the world art market but, at the same time, simply exports the business that was previously being done by London to somewhere outside the Community altogether. That is the threat we are discussing this evening. Do we in Britain, or in Europe, have so many jobs that we can just give them away? I do not believe that that is the case. Nor, I suggest, is it a very good way to mark what could be a new flexibility in the European labour market, heralded in Amsterdam, if we kill jobs through this kind of continental dirigisme. That is exactly the kind of concern that we on these Benches have articulated on a considerable number of occasions.

Another characteristic of the global art market is, as the noble Lord, Lord Strabolgi, pointed out, that many treasures created inside Europe are now outside it, no doubt aided and abetted by the predecessors of my noble friend Lord Hindlip. The imposition of VAT on bringing them back positively discourages their return to the land of their creation, unless of course the purchaser can find a way to reclaim VAT, which is not always that easy.

I believe that that is less of an issue for us in this country than it is for many of the other countries in the Community. When it was my privilege and honour to represent this country in the Council of Culture Ministers, I very much formed the impression that their sense of loss at what they had lost, which had gone abroad, is very great. For the Community gratuitously to make it more difficult for them to repatriate some of the products of this diaspora would, I believe, be contrary to everyone's interests.

Perhaps I may also raise a slightly different point about VAT; namely, VAT and museum charges. I appreciate that the noble Lord, Lord Haskel, who will respond from the Dispatch Box for the Government, may not be able to answer my question this evening. However, I ask him to do so in due course. In the past few days the Secretary of State for Culture, Media and Sport endorsed a new plan for the British Museum which, if I have correctly read newspaper reports, involves the relaxation of the rules regarding VAT. In many cases museums wish to charge because that provides a means whereby they can reclaim VAT, which would otherwise not be possible. If it is the case that some exceptional status has been accorded to the British Museum, can the Minister clarify whether or not that status will also be accorded to the other museums in the

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country? I am not against a relaxation if that occurs, but I believe that it is important for us to be even-handed about such matters.

I turn now to droit de suite. As I mentioned, harmonisation of the system of intellectual property legislation is an essential element of the single market. Like moral rights, the droit de suite is not a right which is known to English law. But there is nothing to stop that kind of arrangement being agreed in contracts by the parties to the sale of works of art. The fact that in this country it is not suggests that its attractions are illusory rather than real. Certainly the kind of situation described so vividly by the noble Lords, Lord Strabolgi, Lord Sandberg, and Lord Freyberg, clearly suggests that that is the case: quite simply, it is the heirs of a few great artists who scoop the pond.

The more I think about it, the more capricious this concept appears to be. As has been mentioned, it is calculated by reference to sale. Therefore, if a really fine example of an artist's work is bought by a museum, then, despite its being seen by many thousands and, over time, perhaps by millions of people, not a single extra penny piece accrues to the artist or his estate. However, let us compare that situation with a less good example. Such a work of art may be acquired by someone who then decides that he does not like it. It is then sold on and, in turn, the next purchaser does not like it, so it is sold again. Each time the transaction occurs the cash register rings. It is entirely illogical. It is my personal view that the droit de suite is a piece of nonsense. It seems to me that it combines some of the characteristics of an hereditary peerage with being the beneficiary of a Jersey trust.

I am also quite clear that this is precisely the kind of issue which member states should be allowed to determine for themselves. If in a particular country in Europe it is an important component of its cultural legal arrangements that this provision be incorporated in its own domestic law, surely it is right at member state level for that to be done. That is entirely in accordance with the principle of subsidiarity and entirely in line with the principle of mutual recognition, which is at least as important an element of the single market as the principles of harmonisation. There is no European Community harmonisation of the rates of royalty, or of auctioneers' commissions or of dealers' margins, so why should there be harmonisation of this aspect of the transaction? I sincerely hope that this will not be introduced into Community legislation on a Community-wide basis. However, in that unhappy circumstance, I urge the Government to consider making a zero rate available.

I have tried to look at such matters from a European Union perspective, to show that the concerns and aspirations of the London art market are not special pleading for the UK in some effort to try to be different from everyone else, but rather that they represent a coherent and logical position for the Community as a whole, bearing in mind its own adopted economic, cultural and institutional policies and priorities.

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I urge the Government to take up the issues canvassed today in the complete confidence that to do so is communautaire in both purpose and substance. They should not be deflected by those who envy and begrudge London's success and who wish to cut it down by legal means having previously been bettered in the market place.

7.17 p.m.

Lord Gillmore of Thamesfield: My Lords, I, too, should like to congratulate the noble Lord, Lord Hindlip, on putting the matter before the House tonight and thank him. I warmly welcome the opportunity to return to a subject which we debated almost exactly a year ago and which is of great significance to our economy and perhaps as importantly to our cultural heritage.

I begin by declaring an interest in that I am chairman of LAPADA, the art and antiques dealers' association, which is the largest association of its kind in the UK and I believe the largest in the world. The association is a founder member of the British Art Market Federation which brings together under its wing all those who seek to promote and protect this valuable British asset. It was for the federation that the report mentioned by the noble Lord, Lord Hindlip, was recently produced.

The Motion refers specifically to the London market; but, of course, it goes well beyond London. The report that I mentioned refers to the United Kingdom as a whole. London may be the centre, but the market is nationwide. The UK attracts buyers, dealers, collectors and art lovers from all over the world because it provides a unique combination. First, as the noble Lord, Lord Renton, said, it possesses some of the greatest galleries and museums in the world. Secondly, it has an astonishing range of historic houses, lovingly maintained and open to visitors. Thirdly, in the United Kingdom there are over 750 auction houses scattered throughout the length and breadth of the kingdom. Finally, and by no means least, there are dealers across the length and breadth of the country.

That dealer community provides a unique underpinning to the market. They are indeed its bedrock. They bring immense expertise and professional skill to the trade. The members of the association which I have the honour to chair have clients all over the world with whom they deal daily and they are bound by a code of practice which gives their customers clear and dependable assurances about what they are buying.

The past 10 to 15 years have been a great success story. However, as other noble Lords have already pointed out, that is now under threat. Like the noble Lord, Lord Renton, I can turn several pages as many of the points about those threats have already been made. I shall, however, add one or two. As regards VAT I wish to re-emphasise a point which in last year's debate was not, I believe, wholly understood, and that is that we are not seeking advantage for the United Kingdom in comparison with its European partners. But we do not want to see Europe disadvantaged in relation to New York or Geneva or anywhere else. That is clearly what will happen if a 5 per cent. VAT charge becomes the European standard. Once again and, alas, not for the first

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time, it falls to the United Kingdom to persuade its partners and the Commission to look outward to the international context, not inward at the European Union as if it were somehow detached from the rest of the world or the only continent on the planet.

As regards droit de suite, I think it is a highly understandable, if a somewhat romantic notion, which lies behind the proposal. But the concrete experience elsewhere in Europe where droit de suite is in force shows how singularly ill conceived the proposal is. It is hugely costly to administer. Certainly 40 per cent., and perhaps as much as 60 per cent., of the levy will be lost in administrative costs before any money is distributed to anyone. We have heard of the case of France where not only is nearly three-quarters of the total levy distributed to six families, but none of them involves poor artists living in poverty in garrets a la Boheme; they are all extremely wealthy already.

I wish to mention a further threat which has not been mentioned. I do so with some trepidation. I refer to UNIDROIT, the Convention on Stolen or Illegally Exported Cultural Objects. Here the case is much more difficult to argue. No one would for a second wish to do anything to encourage a grim and deplorable trade, particularly in plundered antiquities and archaeological treasures. Those who argue against accession to the convention therefore find themselves in the unenviable position of appearing to stand firmly against motherhood and apple pie. The noble Lord, Lord Renfrew, has made frequent references to this in your Lordships' House speaking in favour of accession to that convention.

But the regrettable fact is that the UNIDROIT Convention is appallingly badly drafted and profoundly ill conceived. There is, alas, no time to go into the details. But the convention would place a heavy burden on museums and collectors as well as on the trade. The definition in the convention of what constitutes a work of art is so wide and vague as to be meaningless. The duty of due diligence is placed on the possessor. There is no protection against frivolous challenge. Were I to be in the happy position--which, alas, I am not--of owning a valuable work of art which was liable to challenge, I would make sure that I did not lend it for exhibition, for example, to any country which was a signatory to the convention.

By all means let us take every necessary step to stamp out the pillaging of sites and the obnoxious trade in stolen works of art. But let us not use the vehicle of this wrong-headed convention. I believe that Germany has announced that it will not ratify the convention. I hope that Her Majesty's Government will take a similarly robust view.

I hope that what has been said this evening does not sound too alarmist but the risks are not imaginary, they are real. Some of our auction houses are already repositioning themselves. One, I know, is considering moving its sales of porcelain to Geneva. Another is reinforcing its staff in New York in expectation that--against the background of the pressures that we have described--that is where the future market will increasingly reside.

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I suppose one might ask whether this is of any great consequence. I believe that all the evidence shows that it matters. The United Kingdom economy would lose revenue and invisible earnings. Some of the grander auction houses might perhaps be able to move their focus away from London and, increasingly, to New York. But the large majority, the dealer community--the bedrock of our market, perhaps more accurately its lifeblood--does not have this option. As the noble Lord, Lord Hindlip, said at the outset, they do not have the option of upping sticks. Their livelihoods are at stake. If, little by little, they were to disappear, their skills and their knowledge would be lost and our culture would be the poorer for it.

A year ago when we debated this issue the government of the day displayed an encouraging readiness to stand firm against these kind of threats. I trust that the Minister will be able to give your Lordships the same robust assurances tonight. I hope, too, that he will be able to confirm that the Government are working hard to create alliances with those of our European partners who understand these threats as clearly as we do in the United Kingdom. The French will be particularly important in this regard. If, as French governments have said repeatedly, they attach importance to their patrimoine, then surely they must see that a 5 per cent. VAT charge on imports is likely severely to discourage collectors who wish to bring back to France French works of art bought outside the European Union. Finally, I hope we shall be assured that the United Kingdom's opposition to what is proposed by the European Commission will not be traded away as a quid for some quite unrelated quo in a deal struck in a smoke filled Commission conference room in the small hours of the morning.

7.27 p.m.

Lord Astor of Hever: My Lords, I congratulate my noble friend Lord Hindlip on sponsoring this important debate. I much look forward to hearing the winding up speech of my noble friend Lord Luke when he speaks from the Dispatch Box.

I have spoken in this House in the past about the London art market and do so again tonight with a sense of conviction. What is at risk is our ability to hold on to the position this country has achieved within the past generation or so as the foremost art market in Europe. In so many realms of our national life we have found ourselves in a diminished role, for various reasons including, of course, our relatively reduced economic strength. But in a number of ways we have achieved a more prominent position, of which the world of art is certainly one.

A multiplier effect comes into operation here. The creation and exchange of works of art generates other markets. There is a buzz of activity. People are attracted as bees to honey. Not only does the art market provide employment for tens of thousands and bring overseas visitors here spending billions, but the Exchequer benefits directly through tax on a huge scale. All this is threatened by what I can describe only as a dog-in-the-manger attitude of other European countries who resent the success the UK has achieved in this

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market. They want to deprive us of the financial advantages we now enjoy and which lie at the heart of our success. If they succeed, the result will be not that other countries are able to secure the market that we have hitherto enjoyed, but that the goods are sold outside the European Union, either in the US or Switzerland. Indeed, this is already happening, such is the impact of the threats.

One of the threats is, of course, possible VAT harmonisation. Before the introduction of the single European market, no VAT was levied on works of art imported into the UK. Already, since the introduction in 1995 of the 2.5 per cent. VAT, imports of art from outside the EU have fallen by 40 per cent. So it is not difficult to imagine how serious would be the impact of a doubling of this rate.

However, the European Commission is going to carry out a review of the impact of VAT on the art market. It is essential that Her Majesty's Government take up the cudgels on behalf of the British art trade.

We have heard that the other area which presents a risk to the British art market is droit de suite. The objective of that levy was to help impoverished artists or their heirs. But as things have worked out, it is mainly the very successful who have benefited--for instance, Picasso and his heirs. In France, where the levy was first introduced in 1920, three-quarters of all the money distributed in this way was paid to the families of only six artists, as the noble Lord, Lord Sandberg, said in his excellent maiden speech. But penniless painters and their children are unrewarded.

At the present time 11 of the 15 member states of the European Union have legislation providing for this levy, which varies between countries. It is worth noting that in Italy droit de suite was introduced in 1941 but none has ever been collected.

The European Commission proposal seems to be another example where the attempt at uniformity, apparently for the sake of creating a level playing field for the art market, will have the effect of driving goods out of the EU for sale elsewhere. It has recently been estimated that on 1995 figures the droit de suite alone would have made New York a more profitable place to sell 90 per cent. of the Impressionist market by value and 85 per cent. of the contemporary art market.

In resisting the introduction of droit de suite, British based auction houses consider, justifiably, that this is an instance where the much trumpeted principle of subsidiarity should be applied. I strongly urge Her Majesty's Government to resist any attempt to introduce droit de suite into this country.

7.32 p.m.

Lord Pearson of Rannoch: My Lords, apart from the pleasure of listening to two such excellent maiden speeches, it has been a depressing experience to attend your Lordships' debate this evening. All the fears expressed in our debate almost exactly a year ago on 11th December 1996 have been repeated. Alas, it falls to me to continue the gloom by repeating some of what I said a year ago, to the general effect that there may be

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no way the London art market can escape from these destructive directives while the United Kingdom continues to be bound by the Treaty of Rome. I fear that the battle into which my noble friend Lord Hindlip so gallantly invites us to follow him may well be lost before we start.

Likewise, other noble Lords who have urged the Minister to protect our interests in Brussels may be asking the Government to do something which they are no longer capable of doing. After all, how often do we hear a British Government of one shade or another say that they will fight for this, that or the other in Brussels when in truth they know that they have no chance of succeeding?

I say that because under the Treaty of Rome the London art market, like all other British commercial and industrial enterprises, is in the end governed by European single market legislation, which is in turn ruled by the dreaded qualified majority vote. I am aware that the Conservative Government pretended that the single market was one of their greatest achievements in Europe; but that is a view which some of us have never shared.

To understand why the qualified majority vote (QMV) is so destructive, one has to understand how it works. I know that I have wearied your Lordships with an explanation on several occasions under the previous government, but this is the first time I have done so under the new Labour Government, who appear to believe that they can avoid the effects of QMV by a new charm offensive in Brussels. I submit that the future of the London art market is an excellent test as to whether that charm is working.

There are 87 qualified majority votes among the 15 member nations of the EC. France, Germany, Italy and ourselves have 10 votes each; Spain has eight; Belgium, Greece, Holland and Portugal have five each; Austria and Sweden have four each; Denmark, Finland and Ireland have three each; and Luxembourg has two. Of those 87 votes, 62 are required to carry a new initiative and 26 are required to block one.

As I understand it, and I may be wrong, if we want to avoid the effects of the seventh VAT directive, that would be a new initiative because we have already foolishly agreed to be bound by it. Thus 62 votes would be required to carry the new initiative and reverse the existing directive. On the other hand, if we wish to avoid the droit de suite legislation, in whatever form it finally emerges from Brussels, we would need to muster 26 votes to block its imposition upon us because we have not yet agreed to accept it.

So my first question to the noble Lord, Lord Haskel--he has the unfortunate task of answering for the Government this evening--is how he sees those qualified majority votes being cast on these directives when the British Government press their case, as I assume they will. Are the Government confident, given their brave new policy in Europe, of getting even the 16 votes that we need, plus 10 of our own, to block the droit de suite directive? I have heard a rumour that France may be moving our way on this issue, which would of course be excellent news. Can the Minister confirm this?

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It is an interesting coincidence that the noble Lord, Lord Haskel, answered our debate a year ago for the Labour Party, then in Opposition, and that he is doing so tonight for the Government. I hope that he will be more robust in defence of British interest tonight than he was then. He said at col.1173 of Hansard:

    "I find it difficult to understand why our partners in Europe should agree to our having a competitive advantage so far as concerns VAT".

I trust that the speeches of my noble friend Lord Hindlip and others this evening have enlightened the noble Lord in that respect. In case they have not done so, perhaps I may ask the noble Lord the question that I often put to the previous Conservative Government. I put it a year ago to my noble and learned friend Lord Fraser of Carmyllie who was answering for the Conservative Government at the time. The question was, and still is: what is the point of being forced to play on the level playing field of Europe if its rules force us to lose out to our competitors outside the Community or otherwise damage British businesses? I shall be most grateful for a reply from the new Labour Government to this question because I never succeeded in obtaining one from the Conservatives.

The wider problem is that the London art market is not the only victim of single market legislation and of our adherence to the Treaty of Rome. There are dozens of other British interests which are threatened, or already damaged, by Euro-legislation about which we can do nothing because we have not been able to muster the votes to protect us. Those interests include, to name but a few, our fishermen, waste disposal, slaughtermen, the working week, herbal medicines, dairy farmers, cheese makers, food transporters, whisky distillers, pheasant shooting, buses, market gardeners, paper rounds and takeovers, not to mention the excellent lavatory designed by Thomas Crapper. I could name more, but the principle is always the same. For one misguided reason or another, the bureaucratic corporatist monster which has been created by the Treaty of Rome disgorges edicts which are destructive to our national interest but which we are powerless to resist. It is of course unfortunate for many of those other interests that they may not be so well represented in this House as is the London art market. But that merely makes this debate all the more important.

I conclude by putting my third and final question to the Minister, which I often put to the previous administration without the benefit of a satisfactory answer. In view of the predicament of the London art market which we have debated this evening and that of so many other British interests, has the time not come for the Government to commission an independent cost-benefit analysis of the United Kingdom's membership of the European Union?

Whatever the result of that analysis, I would pre-empt any reply that the Minister might make by saying that if we left the Treaty of Rome we would of course not lose access to its single market because we could easily negotiate a bilateral arrangement such as that enjoyed by Norway and Switzerland (the latter of which, I might add, is clearly going to be a beneficiary of the demise of the London art market if it occurs).

10 Dec 1997 : Column 218

I hope that the Minister will not reply, as the previous administration was prone to do, that such an analysis is not necessary because the benefits of our membership of the European Union are so obvious and self-evident. I submit that those benefits--

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