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Lord Inglewood: My Lords, is this not an instance of the Community shooting itself collectively in the foot? While London for the time being is the principal art market centre within the Community, there is no reason why that should continue. These levels of VAT will condemn the Community as a whole to ring-fencing itself from being in a position to sell works of art from outside the Community.

Secondly, is it not the case that the principal beneficiaries of droit de suite are in fact the heirs of a number of extremely well-known painters and not struggling artists? Is it not also the case that it applies only to works of art sold at auction rather than by private treaty, which by any standards seems to be illogical?

Lord McIntosh of Haringey: My Lords, the noble Lord asks questions about both VAT and droit de suite. Some countries in the European Community at present have VAT rates of 5 per cent. or even more and therefore, presumably, would not suffer if there were a

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levelling up, though as I said before, we shall continue to resist that. In relation to droit de suite, the evidence is rather confusing. It appears that in France, where droit de suite has been going since 1920, around 80 per cent. of the receipts go to 20 per cent. of artists or their families. I have been unable to find out what proportion goes to living artists. However, as far as we are concerned, the amount of money which might go to artists is very small; indeed, it could hardly be more than £10 million, of which £2 million might go to British artists. It could also have the effect of depressing prices even for first sales.

Lord Jenkins of Putney: My Lords, is my noble friend the Minister aware that a distinction must be drawn between tax harmonisation and droit de suite? Is it not the case that tax harmonisation is for the benefit, or otherwise, of governments, whereas droit de suite is for the benefit of the artists? Therefore, to draw the two together and put them into a single sack is quite wrong.

Lord McIntosh of Haringey: My Lords, my noble friend is quite right. That is why I resisted the extension of the Question to include tax harmonisation in general. Of course, there are arguments on both sides. The best regulatory assessment that we have on droit de suite is that £360 million of sales would be affected, with a maximum earnings loss to the British art market of £68 million. Against that we have to balance £10 million which might go to artists. It is on the basis of that balance that Her Majesty's Government have opposed the extension of droit de suite.

Lord Skidelsky: My Lords, I should like to be clear about the exact position in the art market. If the Government's efforts in Brussels fail, is it the case that we will have no alternative but to accept the 5 per cent. VAT on the sale of imported works of art and, indeed, that we will have no alternative but to accept a harmonised rate of royalty to be paid to artists and their successors for 70 years, whenever one of their works of art is sold in this country? Can the Minister say whether that is an accurate statement of the present position?

Lord McIntosh of Haringey: My Lords, the noble Lord has actually asked two questions. The answer to the first one is, yes. If the present reconsideration of the draft directive which has been achieved goes ahead, it is likely that we would have to raise our VAT rate from 2.5 per cent. to 5 per cent. As far as concerns droit de suite, I can tell the House that there is a proposal on the table as regards the draft directive of 2 per cent. on the most expensive works of art; 3 per cent. to 4 per cent. on less expensive ones; and no droit de suite on even less expensive works of art. Indeed, there is a whole variety of options of droit de suite which might be adopted. It is far too early to say what could be achieved. However, the fundamental point behind what the noble Lord has said is that the legal position can be altered only with the agreement of the European Commission and all other member states.

Lord Haskel: My Lords, does my noble friend the Minister agree that the suggestion that an increase in

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costs of 2.5 per cent. would cause financial ruin to companies is something of an exaggeration? We should bear in mind the fact that, over the past few years while this matter has been discussed, most companies have increased their competitiveness and productivity by 10, 15, 20 or even 30 per cent.

Lord McIntosh of Haringey: My Lords, that is exactly why I said in response to an earlier question that the maximum loss to the British art market in earnings would be £68 million. That is based on the assumption that all of our relevant sales went across to New York. But that is highly unlikely; in other words, my noble friend is right.

The Earl of Lytton: My Lords--

Noble Lords: Cross Benches!

The Earl of Radnor: My Lords, if the art market went to New York and the auction houses took their business there and operated in that city and all this droit de suite and the extra VAT came in, can the Minister tell us what kind of effect that would have on the export licensing of any remarkable pieces of art? For example, would people be able to take them to New York and receive an export licence in order to do so? It seems to me that it might cause considerable disruption if such a thing should happen; and it might.

Lord McIntosh of Haringey: My Lords, questions regarding export licences are entirely different from droit de suite. Indeed, there is no necessary connection between the two. It is not necessarily the case that we would need, or wish, to reconsider the issue of export licences.

IMF Restructuring Programmes: Education and Health

2.54 p.m.

Baroness Williams of Crosby asked Her Majesty's Government:

    Whether they will urge on the International Monetary Fund the importance of protecting primary education and public health services from expenditure cuts when proposing restructuring schemes for countries facing financial and economic crises.

Lord McIntosh of Haringey: My Lords, the Chancellor of the Exchequer has consistently emphasised the need for the IMF and World Bank to work together to ensure that spending on health and education is protected at times of crisis. Following proposals put forward by the Chancellor at the 1998 annual meetings, the World Bank is developing general principles of good practice in social policy in consultation with the IMF and other relevant organisations. These principles should be drawn upon

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by the IMF and World Bank in the design of their programmes. The principles will be discussed at the development committee meeting next month.

Baroness Williams of Crosby: My Lords, I thank the Minister for that most hopeful reply. I also note that, during his visit to Russia, this very week the Foreign Secretary praised Mr. Primakov for ensuring the payment of arrears in wages to public servants and also for trying to reach social stability in his country. Can the Minister say whether the lessons from the IMF rescue package for Russia in August of last year and the more recent lessons from the Brazil package have been fully learnt, and confirm that in particular primary education and public health services will be broadly protected in future restructuring programmes?

Lord McIntosh of Haringey: Yes, my Lords. It is precisely the problems which arose from the Russian rescue package and from rescue packages in east Asia which led the Chancellor to take the initiative in October of last year to ensure that we have this general statement of principles of good practice in social policy. He will have to push this forward very fast indeed, compared to normal movement in international organisations, if he is to get drafts discussed in April of this year and, as we hope, finally agreed not later than October of this year. Crises happen immediately and their effects are felt immediately. We simply cannot afford to let matters drag.

Lord Judd: My Lords, my noble friend the Minister referred to the role of the World Bank. Does he agree that it has been most encouraging to see the lead being given by the current president of the World Bank on the need for change of policy in this sphere? However, will he accept that, for those working in the front line, there is all too often an absence of evidence of what is agreed at the intellectual strategic level being followed through? Therefore, can the Government pursue that issue and ensure that good intent is turned into good practice?

Lord McIntosh of Haringey: My Lords, my noble friend is quite right to say that Jim Woolfensohn, the president of the World Bank, is very much seized of these issues. I was very attracted by what he said; namely, that social and economic issues were inseparable, like breathing in and breathing out. Indeed, I thought that that was a very proper way to put it. My noble friend knows far more than I do about the way in which these policies are implemented on the ground. I fear that he may be right. I shall, therefore, draw his remarks to the attention of Ministers.

Lord Skidelsky: My Lords, can the Minister say what steps the Government currently take to ensure that official assistance from this country to developing countries is spent on primary goods, which the noble Baroness, Lady Williams, rightly identified as being the

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key to economic and social development, and not simply wasted on economically valueless projects of which we have had many examples in the past?

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