Mark Francois (Shadow Minister, Treasury; Rayleigh, Conservative)

I beg to move amendment No. 2, in page 20, line 32 [Vol 1], at end add

‘but not before 1st September 2006.'.

This clause is designed to implement a recent decision by the European Court of Justice regarding the treatment by the United Kingdom of auctioneers’ commissions relating to goods auctioned while held in a temporary import regime in the UK. In essence, the decision means that such commissions must in future be taxed at the standard rate of VAT, 17.5 per cent., rather than at the reduced rate of only 5 per cent. Our amendment is designed to ensure that the change occurs no earlier than 1 September, so as to allow the market sufficient time to adjust in an orderly fashion.

The background to the matter is that since 1999 the UK has charged VAT at 5 per cent. on the sale of works of art that are held in a temporary import regime, and also on the auctioneers’ commissions that are associated with them. However, the European Commission challenged that procedure under the auspices of the so-called second simplification directive—something with which I am sure that the hon. Member for Wolverhampton, South-West is very familiar—arguing that the auctioneer’s commission should be standard rated at 17.5 per cent. For the record, the UK Government challenged that interpretation, and the Commission referred the matter to the European Court of Justice for determination in 2002. In February 2005, Advocate-General Kokott of the ECJ delivered her opinion in favour of the Commission, and that was upheld by the Court in the spring of this year, necessitating the change that we are discussing.

As the explanatory notes to the Bill point out:

“Buyers premium, a commission charged to the purchaser of goods at auction, will now attract VAT at the standard rate where the goods are within a temporary importation regime when sold and are subsequently finally imported into the European Union.”

Unfortunately, some elements of the press have reported that as meaning that the standard rate of VAT will be levied on the imported objects themselves as well as on the buyer’s premium. My understanding, following consultation with representatives of the British art market, is that that is erroneous; the judgment applies only to the buyer’s premium. The confusion arose partly because there was some ambiguity in the judgment, which allowed room for doubt.

My interpretation is that buyers on the London market will continue to pay 5 per cent. VAT on the hammer price of objects held within the temporary import regime, and will pay 17.5 per cent. only on the auctioneer’s commission. That can vary, but it is usually between 12 per cent. and 20 per cent. of the hammer price of an object. It would provide welcome reassurance both for potential buyers and for practitioners in the market if the Paymaster General were to make it clear beyond peradventure that that is correct.

We then have an issue about the time at which the measure should come into effect, which takes us to the heart of amendment No. 2. The changes are envisaged to take place via an order under clause 18(4) which states that that order should come into effect

“on such day as the Treasury may by order made by statutory instrument appoint.”

I understand that the implementation date has been a matter of some discussion between the market, its representatives, HMRC officials and in particular the British Art Market Federation which speaks principally for the industry on this issue. Among its constituent bodies are the Antiquities Dealers Association, Bonhams, Christie’s, the Association of Art and Antique Dealers, the Society of Fine Art Auctioneers and Valuers, the Society of London Art Dealers and Sotheby’s.

The BAMF was keen for me to stress this afternoon the constructive dialogue that it has had with the Paymaster General’s officials on this matter and that they are grateful for the time and trouble to which those officials have gone. They wanted me to place that on the record, which I am happy to do.

The key point, however, is that the market is seasonal, so it is important that the change should not be brought in mid-season. That could have an unsettling effect, as Anthony Browne, the chairman of the BAMF, explained in a letter to me. He wrote:

“The changes require primary legislation and we have discussed the changes with HMRC. The implementation date for the change is a crucial factor for the market, since the judgement requires changes to computer systems, contracts and catalogue rubric. The EC expects rapid compliance with the judgement and we have been told that the latest date for implementation is 1st September 2006.”

Mr. Browne continued:

“This date seems appropriate if, as we have been told, we cannot delay until 1st January 2007. An introduction date between the two would be likely to cause more confusion than it would be worth, since it would involve changing the rules during one of the busiest times of the year for the art market.”

That seems to be a reasonable point and I am happy therefore to put it to the Paymaster General. On that basis, is she prepared to accept our amendment? It would not obstruct the court, but merely allow time for the UK market to adjust. Alternatively, if she is not minded to accept the amendment, which specifies 1 September 2006, will she explain her rationale and perhaps offer an alternative implementation date, if that is what she has in mind.

Rob Marris (Wolverhampton South West, Labour)

I congratulate the hon. Member for Rayleigh on speaking well and cogently. I like it when, while discussing the Finance Bill, we get occasional flashes of politics. Earlier this morning, we debated Government amendment No. 1 on VAT and now we are debating amendment No. 2. I may stand to be corrected, but it strikes me from the numbering that the most important thing that the Conservative party have locked on to is the date of implementation of those VAT changes on imported works of art. I recognise that the London art market is important, but it does not play huge around the country. It is not a huge issue in Wolverhampton, South-West, yet it appears to be their No. 1 priority.

Philip Dunne (Ludlow, Conservative)

Will the hon. Gentleman give way?

Rob Marris (Wolverhampton South West, Labour)

No, I will not because I shall be sitting down soon.

That appears to be the Conservative party’s No. 1 priority. That is absolutely extraordinary.

Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth & Camborne, Liberal Democrat)

That is a difficult one to follow. Obviously, the substance of the clause is sensible— compliance with the European Court of Justice  ruling—however, there is a great degree of sense to the amendment. It reflects the seasonality of the art market and would allow time for people and the market to adjust before implementation. We will support the amendment.

Debate adjourned.—[Mr. Heppel.]