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Lord Inglewood: My Lords, will the noble Lord give way? For the avoidance of doubt, I should be grateful if the noble Lord will tell me: does he want to see the collapse of the London art market in order to vindicate his prophecy of doom?

Lord Pearson of Rannoch: My Lords, I hope that my prophecy of doom will be disproved by the present Government, who will be successful in their negotiations with the European Community.

Perhaps I may return to my conclusion, which was to submit that the supposed benefits, by which my noble friend Lord Inglewood is clearly convinced, of our membership of the European Union must be far from obvious to those who earn their living in the British art market and to very many others besides.

7.42 p.m.

Lord Jacobs: My Lords, in responding on behalf of the Liberal Democrats, and as a very new Member of your Lordships' House, I thought it desirable to do a little research. I came across the debate that took place just a year ago, on 11th December 1996. I read its approximately 9,000 words with interest. I presumed, because the nature of the subject for debate had been changed this time, perhaps the topics had changed slightly too--which shows that I have a great deal to learn.

There is a need for other subjects to be included as we are talking about the international art market as it affects Great Britain. I looked up the remarks of Liberal Democrats in the debate last year--and saw that they were not there! I therefore very much welcome the noble Lord, Lord Sandberg. It is to be hoped that if debates on this subject occur on other occasions, both he and I will be able to represent our party.

I must declare a past interest, in so far as I have a daughter who used to be quite well known as a contemporary art dealer in London. However, she is not a dealer any longer. She is studying to be a psychotherapist--which probably says a great deal about the nature of the art market. I recognise the major contribution that commercial galleries, auction houses and museums of art play in drawing visitors to London from all over the world.

The noble Lord, Lord Renton, referred to the excellent number of galleries that we have, particularly in London. The noble Lord did not mention one major gallery that does not presently exist in London. Here I declare a current interest, for I am a supporter and fund-raiser for the new Tate museum of modern art being constructed at Bankside, on the south side of the River Thames, opposite St. Paul's cathedral. Perhaps I may immodestly say on behalf of that museum that when it is completed it will be among the three or four greatest modern museums in the world. It is a

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millennium project costing £130 million, to which the Millennium Fund has contributed £50 million. There remains just £25 million to be raised. The project is proceeding very well.

There are a number of other major projects in London, including the Royal Opera House, the National Theatre and the British Museum, all of which are associated with lottery funds. There is, however, only one entirely new project being added to the London cultural scene; namely, the Tate museum. I believe it will be one of the big new tourist draws for London, and for the whole of Great Britain.

Everything is proceeding well with the project. There is just one problem. The lottery fund is now anticipated to generate nearly £10 billion, of which at least £4 billion will be for capital projects. Each one of those capital projects, which include the new Tate at Bankside, will incur substantial operating costs such as staffing, maintenance, depreciation and so on. Yet the groups funding such capital projects, including the Arts Council, the Heritage lottery fund and the Millennium Commission, say that they are not responsible for helping with the operating costs. So when all these projects come to fruition, we can be certain that at least £200 million a year will be required to cover the operating costs after deduction of the revenues they will receive from services that they provide.

In the case of the Tate at Bankside there will be an operating deficit, after taking into account restaurant and other revenues, of at least £5 million a year. I do not believe that it is the Government's strategy to force all museums to charge admission. I know that the subject is presently being discussed. I believe, therefore, that a serious mistake has been made in deciding that lottery funds cannot contribute towards endowment funds towards the maintenance and operating costs of these new projects. I believe that as much as £2 billion of the £10 billion that will be raised should be provided towards endowment funds.

Surprisingly, the rules do not prevent the provision of endowment funds. They are permitted, and in one case a small endowment fund exists. As an accountant and former industrialist, I find it inconceivable to engage in a major capital project without carefully examining how the operating costs are to be financed. I favour endowment funds; the only alternative would be if the Government would give £200 million in additional funding to the Arts Council for redistribution. At present, that is unlikely.

I now turn to the question of VAT harmonisation. I have learnt a lot about it, both from reading the debate last time and from hearing most of the same speakers making slightly different speeches in this debate. I feel that I have at least understood the subject and that the Government--even though not in government last time--will be equally familiar with it.

As the 13th speaker in a debate such as this on quite a narrow range of subjects, it is almost impossible to say anything entirely new. However, the key issue in relation to harmonisation where VAT is concerned is that the other countries in Europe have examined the

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situation and do not come to the conclusion that they have a great deal to lose. Therefore, to them, harmonisation is quite a nice idea. It is only when we examine the issue in this country that we recognise exactly what we have to lose. Reference has been made to Geneva and Switzerland; but in terms of art sales in the international market they do not rate very highly. The international art market is based on London and New York. I have spent quite a large amount of time in the United States. I recognise that the market is steadily moving towards New York and that this country is losing it. The other countries do not have a vested interest here; therefore it is not surprising that they do not move to try to change the structure.

Then there is droit de suite harmonisation. The initial idea is quite attractive. I shall not explain it again since it was twice very well explained during the debate. But one point has been missed. When well-known artists produce very good paintings, they often try to ensure that those paintings go to museums, often at a favourable price. They will probably never be resold. As I believe one noble Lord mentioned earlier, the lesser paintings are in many cases the ones that may be resold. The initial idea was a good one but its practical application is completely hopeless. I therefore strongly urge the Government to endeavour to secure change to both the VAT harmonisation plan with regard to art and the artists' royalty plan, which will also very much damage our interests.

7.50 p.m.

Lord Luke: My Lords, I should like to thank my noble friend Lord Hindlip for initiating this debate and add my congratulations to those already offered to the noble Lord, Lord Sandberg, and my noble friend Lord Naseby. Their maiden speeches were excellent and we look forward to hearing the noble Lords again. I was going to say something about King Charles I but it has already been said by my noble friend Lord Renton.

I know how difficult it can be to speak second to last in a debate. Nearly all my arguments have been made far better than I could make them; however, I shall persist. I must declare an interest. I have for the past 25 years dealt in 19th century watercolours. I have paid VAT on my margins, though I no longer do so. I am not, however, at present studying to be a psychotherapist. The levels at which I buy and sell my wares are rather different from those of the works of art which we have been discussing today. But even at my level the trickle-down effect will sooner or later operate as more and more specialist dealers decide to move their core businesses to New York and Geneva.

The most important immediate reason for this debate, as the noble Lord, Lord Gillmore, said, is the report of the British Art Market Federation for 1997, published last month. That document shows beyond argument that the predicted drop in imports of arts and antiques from non-EEC countries to the UK in the period since the introduction of the VAT levy of 2.5 per cent in 1994 is 40 per cent. That is extremely significant and disquieting. As many noble Lords have said, a levy of 5 per cent. will be even worse. As the noble Lord, Lord Sandberg, said, it could be even higher than 5 per cent.

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As we heard from my noble friend Lord Hindlip and from the noble Lord, Lord Strabolgi, we are talking about a global market, not a European market. Europe is involved, but the market is a global one. The European Commission seems to be only too happy to destroy the Community's participation in the world art market because other countries which do not currently share London's position have not appreciated the real implication of what is proposed. It is useless to talk about level playing fields when three-quarters of the players are not even playing the same game.

Those who have the resources to buy and sell great art operate internationally. They have no loyalty in conducting their business other than to buy and sell in circumstances most favourable to themselves. And why not? They are, however, increasingly unlikely to keep their collections in Britain, with all that that means in terms of works of art leaving the country; nor are they likely to keep them anywhere in Europe. The great auction houses and major dealers have, as it were, gone international and can absorb the changes of focus that that entails. It is the lesser houses and the great generality of dealers who will be at an ever-increasing risk of losing their businesses. I believe that, if we are not very careful, this decline will eventually destroy Britain's strength in the market.

Mr. Ian Taylor, Minister for Science and Technology in the previous government, said to the House of Commons European Standing Committee in January this year:

    "The proposals for droit de suite are not sensible; if harmonisation were needed it would be better merely to withdraw artists' resale rights across the European Union--that would give each country an opportunity to decide what was best for it".

He went on to say:

    "This measure will not lead to a significant, nor even a material improvement in the well-being of artists".

I believe that that sums up a situation that has not changed since then. The noble Lord, Lord Freyberg, said that there is at present no droit de suite operating in the United States. I believe that it was introduced into California a few years ago and then withdrawn as unworkable. I do not know what lesson we draw from that.

New taxes mean more bureaucracy, thus adding even more to the perception of the foreign buyer or seller--because that is what he goes by--that it would be less hassle, as well as better value for money, to go elsewhere.

A number of noble Lords said that, with the presidency of the Community, the Government's chance will come to change the situation. For instance, will the Government follow up the request for a proper cost-benefit analysis by the European Commission of the effects of droit de suite, not only of the possible benefits which might accrue to artists but also of the costs of collecting the levy? What plans have the Government for persuading the French to honour their pledge to open their art market to other members of the Community? Surely they are breaking Community law by not doing so? What sanction is available to persuade them? When will the review of the impact of the seventh directive, to which the Commission is committed, start

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to take evidence? Will the Government try to accelerate the start of that review so that they may be in a position to influence its conduct during their presidency? Is there in fact anything that the Government can do about droit de suite coming to this country, other than to discourage all attempts to impose it upon us? Subsidiarity has been mentioned; I believe that this is an excellent case for the application of subsidiarity.

There are many questions to be answered. This sorry tale is a remarkable example of how a market, founded by great effort and enterprise on a completely free and open trade principle, is being slowly but surely strangled by impositions of unnecessary and counter-productive tax and bureaucracy. As so many noble Lords have said, no one gains except the United States and Switzerland. The United Kingdom loses all the way along the line. The European Community looks extremely foolish as it cuts off the British nose only to spite its communal face. I look forward to hearing what the Minister has to say.

7.59 p.m.

Lord Haskel: My Lords, I am grateful to all noble Lords for their contributions to the debate. I should particularly like to congratulate the maiden speakers and also the noble Lord, Lord Jacobs, since I believe that this was the first time that he has spoken from his party's Front Bench.

Yes, it is a year tomorrow since your Lordships last addressed this issue. When I then spoke I was at the Dispatch Box on the opposite side of the Chamber. Words are often a hostage to fortune, but, in spite of the selective quotation made by the noble Lord, Lord Pearson, my views have not changed.

It is timely to return to this issue. The current situation, as I understand it, is that a revised proposal for a directive to harmonise artists' resale rights is currently the subject of inter-services consultations within the Commission and will be considered by the Chefs de Cabinet in around a fortnight.

I congratulate the noble Lord, Lord Hindlip, on his timing. It is a current issue. He told us that he has been in the art industry for 35 years. He knows the realities of the market place, as do many other noble Lords who have spoken. I can assure him that the Government will reflect carefully on what he and other noble Lords said today. We will take the matter seriously, as the noble Lord, Lord Naseby, urged. I hope that others elsewhere will too.

Art is not often thought of as an industry; but it is, and an important one. It makes a significant contribution to the United Kingdom economy and many noble Lords this evening gave us the figures. It is a highly successful industry and an example of what can be achieved given the right skills, imagination, management, investment and willingness to take risks. The Government are determined to see that that achievement is not undermined. Though we have only been in office for seven months, Ministers have already met representatives of the art trade on several occasions. We understand their concerns. We shall maintain a regular dialogue with them.

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Though there has been a change of government, the United Kingdom's policy has not changed. This Government, like the last one, is opposed to the introduction of artists' resale right. The reason is quite simple. Introduction of the right would damage our art market and would bring little or no benefit to the majority of British artists. In our concern for the art market, we must not forget the artists. As the noble Lord, Lord Freyberg, reminded us, they are the seedcorn. Traders need artists and artists need traders. They depend upon each other. The Government want to encourage artists, but applying a uniform royalty rate throughout Europe is not the right way to do it.

Despite the absence of artists' resale right, we have one of the largest--if not the largest--community of artists in the European Union. It is a thriving community. British artists benefit directly from the success of our art market, particularly from the influx of wealthy people and organisations, as other noble Lords explained. Those visitors come to our auction houses, galleries and dealers and stay in our hotels. They bring a lot of business to the United Kingdom and are always on the look-out for works of up-and-coming artists.

The Government will not name the artists of tomorrow. Whoever they are, they are benefiting from a lively and prosperous art market. The Government believe that the best way of helping British artists is not to introduce artists' resale right, but to ensure that our art market prospers and with it our artists. The way in which society looks after its artists is a social or cultural matter. The art market is an economic matter. We should not confuse the two. But what is good for the market is good for the artist also.

I say to the noble Lord, Lord Jacobs, and other noble Lords that it is important to record that we do a considerable amount to help artists even though we do not have the "droit de suite". We set up the lottery-funded endowment for science, technology and the arts. We should not forget the funds distributed by the Arts Council. The Government are committed to encouraging links between the world of business and the arts. The Government's National Heritage Pairing Scheme is a strong force in forging such links. We encourage a wide range of imaginative and valuable partnerships between the private sector and the arts. We do not ignore artists; we do what we can to help them in spite of not having the droit de suite.

I come back to the central issue which concerns your Lordships. The London art market is unlike any other in Europe. It is the Community's only truly international art market. Many of the works bought and sold here are ones traded internationally. If they were not sold here they would be sold in New York. Investors sell where they get the best returns. They will not come to London and Paris--or Frankfurt for that matter--if it costs them more to sell here than elsewhere.

London is a successful international art market not only because of the absence of artists' resale right, but because of its history, reputation and expertise. Yet, as other noble Lords said, our share of world auction sales is already beginning to slip and the United States seems to be the beneficiary. That is a matter of concern.

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I agree with other noble Lords that the proposal on artists' resale right will result in trade switching from London, not to other European capitals, but to New York, Switzerland or Hong Kong and other places where the right does not exist. The Department of Trade and Industry conducted a study and estimated that up to 5,000 jobs and earnings of up to £68 million per annum in dealers' and auctioneers' fees would be lost to our competitors.

The proposal is an unfortunate example of a single market measure for which a good case has not been made out. It completely fails to recognise the global nature of the art business. I agree with the noble Baroness, Lady Rawlings, and my noble friend Lord Strabolgi, that it is a European issue. Levelling the playing field in Europe is pointless if all it does is make the Community's art market less competitive internationally.

I say to the noble Lord, Lord Pearson, that we are committed to completion of the single market. The internal market has a valuable part to play in improving competitiveness. The Government will support sensible harmonisation to achieve that. The noble Baroness, Lady Rawlings, reminded us that there is a need to ensure that the proposals for completing the internal market bring genuine benefit, and we agree with that. In this case, harmonisation will make the art industry less competitive.

I am not surprised that the noble Lord, Lord Pearson, received no reply to his question from the previous government; it is a pointless question. However, he asked about qualified majority votes and France's position. There is not a blocking minority at the moment. We have 10 votes; the Netherlands have five and Ireland three. They too support our proposal and that brings our total to 18--eight short of a blocking minority. If France comes in--it has 10 votes--there would be a blocking minority. However, France has said that it favours harmonisation and is currently considering what the appropriate royalty should be. There is still a lot to play for. The DTI study has been translated into the languages of other member states. It may cause them to question what the consequences for them will be. The Government will not throw in the sponge.

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