Artist's Resale Right Regulations

– in the House of Lords at 8:01 pm on 24th January 2006.

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Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation) 8:01 pm, 24th January 2006

rose to move, That the draft regulations laid before the House on 15 December be approved [20th Report from the Merits Committee and 14th Report from the Joint Committee].

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

These regulations will implement European directive 2001/84EC on the resale right for the benefit of the author of an original work of art, as required to meet our obligations under European Community law. Throughout both the negotiations on and now the implementation of this directive, there has been one factor that we have kept uppermost in our minds: the UK has a thriving art market which makes a significant contribution to the UK economy. The Government are committed to ensuring that that remains the case. We are determined, and have been throughout the negotiation, that our implementation minimises any risk of sales being diverted from the UK to countries where the right is not currently available. The choices that we have made in this implementation do, we believe, secure this important objective.

However, we also recognise the value and importance of encouraging visual artists, many of whom struggle to earn a living from their art. Artists, unlike composers of music, for example, have less opportunity to make a return on their creative effort by receiving a copyright royalty income from sales of large numbers of copies of the original work. And of course the value of the original creation can rise with time as the reputation of the artist grows. But without the resale right the artist gets no benefit from such increases in value once he has sold the artwork to someone else.

Our implementation has balanced the needs of both groups, making use of key concessions to protect our art market while providing benefit to the artist and minimising the administrative costs involved in collecting royalties. In each case we have ensured that we have not gone beyond the directive and that the principles of reducing burdens on business through better regulation are met while rewarding the creativity of artists. I am aware of the report of the Merits Committee of this House, but I believe that it did not consider the impact on artists in its remarks.

Today I will be explaining some of the detail of the directive and its implementation in the UK. But I would like to start by stressing that we have carefully considered all evidence available to ensure a balanced and workable implementation. We have undertaken extensive consultations, both formal and informal, with representatives of those who will be affected. We have had over 140 responses to our consultation. We also commissioned independent economic analysis on the impact of resale right and have closely monitored the implementation in other EU countries. We have had many meetings with relevant collecting societies and representatives of the art trade when making the final decisions.

During negotiation of the directive, the UK Government secured a number of concessions to protect the UK market. The first was the cap on royalties, at €12,500. The original proposal contained no such cap, which would potentially have penalised our successful artists and damaged our art market by diverting sales.

The second key concession that the UK successfully negotiated concerned the length of time for which the resale right applies. In many member states which already have the resale right this lasts for the full term of copyright protection in the work of art; that is, the life of the artist and 70 years after his death. Our current implementation of this directive only delivers the right to living artists as that is what will stimulate creativity. This is possible as a result of a derogation we secured permitting the UK to delay application of the right to works by deceased artists until at least 2010. We also have the option of making a case to the European Commission for a further extension until 2012. Works by deceased artists make up the most important and valuable sector of the UK art market and it is vital that we allow the market as much time to adjust to the changes as possible. This was a hard-fought concession for the UK. We are using our derogation and will make a case for its extension.

The final concession that the UK secured was an obligation on the European Commission to enter negotiations to make the relevant article of the Berne convention compulsory worldwide. Unsurprisingly, to date, that has been unsuccessful. In view of that we will seize the opportunity of the scheduled review of the directive to press for the derogation for deceased artists to be made permanent.

In addition to these key concessions, a number of options are available to member states within the directive. I will now outline the most important decisions that we have made in formulating these implementing regulations.

Member states are permitted to set a threshold on the sale price. Sales of work below this threshold would not be eligible for resale right. The maximum allowable threshold is €3,000. However, setting this threshold at €1,000 will greatly increase the number of UK artists who will receive royalty payment. In 2003, 998 works by living artists were sold at auction for over €3,000. Setting the threshold at €1,000 would have encompassed 770 more sales; 88 per cent of these works by living British artists. Many of the additional artists to benefit from a lower threshold are on very low incomes or are just starting out in their careers. A lower threshold would also allow a wider range of artists to benefit from resale rights. Works of sculpture, illustrations and cartoons which are also covered by the directive rarely resell for as much as €3,000.

In making a decision on the threshold, we have, however, looked very carefully at the likely impact on location of sales, specifically the risk that sales might be diverted to other countries. It is extremely difficult to envisage any circumstances where for sales of €3,000 or less the costs of relocation will not exceed any royalty payment due. Indeed, there is a general consensus, supported by independent economic analysis, that lowering the threshold will not increase the risk of diversion of sales from the UK.

The major concern regarding these sales is whether the benefit to the artist justifies the cost to business in processing payments. The royalty payments on low value sales will be small and we must balance this against the administrative burden that will be placed on business. We were provided with a detailed proposal for the administration of the right by a relevant collecting society. This estimated that costs to business could be as little as £1 per transaction; all additional costs would be covered by the collecting society.

While these figures were disputed, we never received any substantiated evidence relating to costs from the art market's representative body which challenged these figures, though we asked them to do so if they believed they were wrong. The figures may be a slight under-estimate of the true costs but we believe, on the balance of evidence, that costs will be in this order of magnitude. This is supported by independent economic analysis. A threshold below €1,000 could not be justified as at that point the administrative burden would almost certainly be disproportionate to the benefit to the individual artist even with the benefit of a collecting society.

A further key decision I wish to outline concerns the collection of royalties. The directive allows us to provide either optional or compulsory collective management. After considering all responses to our consultation and the evidence put forward regarding administrative costs, we have decided to provide for compulsory collective management. This means artists will be able to receive their royalties only through a collecting society and will not be able to claim them directly. Although this reduces the artist's choice in managing their rights, and is unusual is the field of copyright, a number of independent studies on resale right show that the cost to business of administering the right is significantly reduced when compulsory collective management is adopted.

Compulsory collective management will provide the art market with a very limited number of contacts points, which will co-ordinate collection and payment of royalties. If artists were free to manage their own rights, the art market could be inundated with separate requests for individual sales information. These could be made at any point up to three years after the sale had taken place. Art dealers would have to retain the royalty payment for up to six years in case a claim was made. They would also be unable to determine easily whether the artist was eligible, or even alive, without creating and maintaining their own databases. A collecting society will easily be able to provide evidence of eligibility and create an efficient collection method. This will reduce the burden on business. Indeed a number of businesses, particularly smaller art dealers, specifically requested compulsory collective management in response to the Government's consultation and during informal consultation.

Royalties are calculated on the basis of a tapering scale of percentages applied to price bands of the sale price. The majority of these are fixed within the directive but the UK can choose to set the rate on the first price band of up to €50,000 as either 4 per cent or 5 per cent. Selecting the higher rate would increase royalty payments on lower value works, and would therefore provide more benefit to artists. However, this would increase royalties on all sales up to the cap, and therefore increase the number of works for which it might be considered worthwhile relocating the sale from the UK. The Government cannot accept any increase in the risk of diversion of sales and therefore we have set the rate on the lowest band at 4 per cent.

As I have already said, resale right is an entirely new right within the UK. We will therefore be carefully monitoring its impact. An EU review of the directive is scheduled to take place in 2009. We will commission further research during this period to determine the true effect that resale right has had on the UK art market to enable us to feed into the review process. This will arm us with invaluable evidence to consider with our colleagues in Europe whether any amendments to the directive should be made. At this stage the Government will press, too, for the derogation for works by deceased artists to be made permanent.

Our implementation represents what we believe to be the most sensible and balanced option available. It takes account of all views expressed during our extensive consultations. We have made use of all options to minimise diversion of sales from the UK, thereby protecting our art market. We have also ensured that administration costs are kept to a minimum, while providing a right which will benefit as large a number of British artists as possible. I commend these regulations to the House. I beg to move.

Moved, That the draft regulations laid before the House on 15 December be approved [20th Report from the Merits Committee and 14th Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative 8:15 pm, 24th January 2006

rose to move, as an amendment to the above Motion, at end to insert "but this House regrets that the regulations go beyond the requirements of the European Union directive implementing the regime for the payment of artists and calls for the regulations to be replaced within six months by regulations in accordance with the directive".

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative

My Lords, I am grateful to the Minister for setting out the draft regulations as he has. The Government's original estimate for the time that this debate will take was 45 minutes, but I think that may turn out to be an underestimate, and I hope that the House's temper is not affected by the late start.

In moving my amendment, I should declare an interest that one of my sons is a self-employed letter-cutter and stone-carver and that I am and have been for the 10-year period of this saga the only president that the British Art Market Federation has had. Henceforward I shall refer to the federation as BAMF. It pays me a small retainer not of my seeking to enable members of BAMF to feel free to telephone me when they wish. BAMF was set up in 1996 in response to a request by the DTI and has welcomed the chance to work closely with Her Majesty's Government. Relations have been good over the decade; it is the set-back to those relations, arising from the precise terms of the draft statutory instrument, that has been criticised to a greater or lesser degree in recent days by the Economic Development, Culture, Sport and Tourism Committee of the London Assembly, on the "Channel 4 News" last Wednesday, on the "PM" programme on the BBC on Saturday and by the first Times leader yesterday, that gives rise to this amendment.

The Merits of Statutory Instruments Committee of your Lordships' House, to which the Minister made reference, thought that the Government's wording afforded potential for such an amendment, especially given that the regulations create an intellectual property right previously unknown to UK law.

BAMF appreciates that the regulations are a necessary consequence of the EU directive. BAMF has always been loud in its praise for the Government's robustness in the national interests during the five years of the negotiations of the directive, between 1996 and September 2001. The Government's opposition to the directive was based at the top end, on the likelihood under the directive of significant sales previously conducted in London moving outside the EU to markets where droit de suite does not apply—notably Switzerland and the US; and, at the bottom end, on a low threshold for the resale right imposing new costs of business quite disproportionate to the putative benefits that artists would receive.

The Government's original objective, in line with those policy criteria, was to set the threshold at €10,000. The reason why negotiations took five years was that the Government, vehemently opposed to the draft directive, unless there were a level global playing field that would thus avoid damage to the EU and UK markets, constructed a blocking minority composed of Austria, Ireland and the Netherlands, which, like ourselves, neither had nor desired droit de suite, combined with Denmark, Portugal and Sweden, which already had a resale right and favoured a directive but was sympathetic to our concerns. There was some political cost to the latter three countries in supporting us, so it was inevitable that the blocking minority would not hold out indefinitely; but significant concessions towards our case were secured in the process in the Internal Market Council.

The Government, in a way that the rest of the EU admires, maintain solid cross-departmental unanimity, which had the Prime Minister's consistent, active and effective support. They secured a €12,500 cap to droit de suite individual payments, as the Minister has said, and achieved the derogation till 2010, extendable to 2012, whereby royalties will accrue only to living artists.

On the minimum threshold, the directive was eventually unanimously agreed in the Internal Market Council at €4,000. It fell to €3,000 in the conciliation process with the European Parliament, which was urged on by the commission, so hostile to our case that it issued a press release condemning the concessions that had been made to us. The Government had already, most unusually, threatened the use of the Luxembourg compromise. To demonstrate their reaction to being asked to vote on a final threshold a third lower than the council had unanimously agreed prior to conciliation, the Government then, even more unusually, voted against the directive's final text. That took five years, leaving Her Majesty's Government at least four years to publish this draft statutory instrument, with a further three months to spare for everyone to prepare for implementation once they had the Government's precise interpretation of the directive for British purposes.

The Patent Office commissioned unpublished research, now known as the Leeuwenburgh study, of the likely working of droit de suite. After two and three-quarter years, the Government had effectively reached agreement on the application of the directive, with BAMF on the one hand and the Design and Artists Copyright Society, henceforward referred to as DACS, on the other. As late as mid-February last year, the consultation document issued by the Patent Office retained a threshold of €3,000. The Minister, in giving evidence to the inquiry into the art market by the Commons Select Committee on Culture, Media and Sport, said the following month—that is March 2005—that applying the level below €3,000 would mean that,

"The administrative costs become an absurdly high proportion of the actual payments which will go to artists".

Both BAMF and DACS replied to the consultation. An effort by DACS to discuss administrative costs collectively with auction houses and dealers was foiled by the Government's competition laws, but individual auction houses and dealers invited DACS to come back for individual talks—invitations which the society did not take up. Those talks would have been devoted to the technical problems of setting up the systems.

The Select Committee inquiry was perhaps constrained for time by the distant thunder of the election. It was on the broad subject of the art market; it lasted for 11 weeks in all. Witnesses were given brief deadlines to produce written evidence, which had to be produced before the consultation document had been published. The time allotted to oral evidence within those 11 weeks was a single morning. During that evidence on 8 March, the chairman of BAMF, Mr Anthony Browne, drew attention to the unpublished research commissioned by the Patent Office and suggested that the Select Committee should look at it. There is no prima facie evidence from the Select Committee report that it did so, but it did recommend reducing the threshold to €1,000.

I am not clear precisely when the Patent Office commissioned a second study, now known as the Graddy and Szymanski report, but it was published in October 2005. Its evidence essentially confirmed the facts of the earlier study. In early September, a month earlier than the publication, BAMF was expecting to be shown the draft regulations for final comment. That offer was withdrawn, perhaps because they were not yet ready. The Government were then nearing the deadline of 1 October for publishing the regulations, by now four years in gestation, to allow three months for market preparations based on the final text. The Minister did not seem wholly aware of that time pressure when the chairman of BAMF and I visited him on 18 October.

Be that as it may, BAMF was asked at the end of September to amplify the estimates of administrative costs that it had submitted in the consultation phase. That was requested as a response to a DACS estimate, later quoted by Graddy and Szymanski, of between 43p and 56p per sale—which the Minister has translated as £1—in quarterly submissions. BAMF explained that it could do no better than before unless it saw the final text, since the specific demands on its members would be contained therein. One auction house within five days did illustrate the price that had been paid in DACS's not taking up the invitation to meet them to discuss the technical problems. I cite a handful.

In DACS's argumentation, it took responsibility for the calculations, and cited the details of a single auction sale that that auction house had conducted. The auction house identified a 6 per cent error rate by DACS in the calculations, and explained to the Patent Office that the market would have to make its own calculations; it could not rely on those by DACS, not just because of that but because it could secure no indemnity against DACS's mistakes or failure to inform, especially as claims could be made up to three years later, long after the auction house had paid out its vendor's proceeds. Its confidence had not been encouraged by DACS's assumption in its calculations that droit de suite would be charged on the buyer's premium, nor had DACS allowed for the myriad of ways that auction houses allow their bills to be paid while buyers may default or procrastinate.

Since the draft regulations were published—of course with their decision to set the threshold at €1,000, to insist on both agent and vendor responsibility, and to impose compulsory collective management, which I believe is unique in the European Union—highly respected dealers have tried checking out artists whose works they handle against the DACS website. They have found it, at this stage, impossible to do so. The Graddy and Szymanski report stated that the art market had claimed costs of £30 to £40 per transaction, which is in line with Leeuwenburgh's figures of £28 to £38. It also quoted him as giving figures of £6 per item under compulsory collection and £11 under voluntary schemes. Those were in fact the lowest individual figures he received in a survey that he conducted, but the highest went as far as £50. The spectrum from 43p at one end to £50 at the other makes it crucial to know, and I therefore ask the Minister, whether the Patent Office showed Graddy and Szymanski the auction-house reply that I have just cited on why the process was not as straightforward as DACS imagined.

This is not the moment or the hour to get into arithmetical calculations, but there seems general agreement that fewer than 1 per cent of British artists will qualify for droit de suite in the auction houses and among dealers if the threshold is lowered in the way that the draft statutory instrument intends. I shall say that again slowly. Fewer than 1 per cent of living British artists altogether will benefit. That percentage makes DACS's raising of hopes to those described as poor artists a cruel mockery, especially when Szymanski and Graddy calculate that, with the €1,000 threshold, artists below €3,000 would receive an average payment of £49 before DACS's 25 per cent fee. In Leeuwenburgh's study of the 189 living British artists above the €3,000 threshold, eight of them would share 31 per cent of the total droit de suite—yet Caro, Hockney and Hodgkin, obviously among the potential beneficiaries, have all come out against the principle of droit de suite in their letter to the Times. The £49 that I cite as being the average payment between €1,000 and €3,000 does not, of course, include the costs to business.

Beyond the extra costs to business, what are the consequences of this U-turn? Despite the Government's earlier inter-departmental unanimity in opposing the directive, I am sure that the Minister must have Whitehall cover, just as he has conferred it on his officials. But the Government's boast of not gold-plating EU directives is now holed below the waterline, despite the published Cabinet Office guidelines for civil servants in preparing regulations of several years ago, and the Chancellor of the Exchequer's very recent reiteration of gold-plating no longer occurring. For small businesses—whether auctioneers or dealers—a new set of systems will need to be set up, potentially to cover 50 countries. Making the agent and vendor jointly responsible creates double the hassle.

Much more serious still when considered in the context of the market moving offshore is the sense of irresolution now conferred on the Government's future defence of the derogation relating to dead artists, who will constitute 80 per cent of the droit de suite universe. Our recent allies Austria and the Netherlands have already legislated at €3,000. How does our behaviour affect their confidence in us when we shall need their help again, or how does it discourage the Commission or the European Parliament from assailing anything else that smacks of concession to us? A Government who stood firm in their first term of office have run for illusory cover in their third.

The trouble with throwing away a key concession at the lower end—I am sure that the Minister does not consciously believe that he is damaging the market at that level—is that it makes it much more difficult to hold the line at the top end, where the capacity for damage is in due course immense. Those at the lower end on whom the Minister has unnecessarily increased the burdens will not even be comforted that the market will overall in future be more secure. I beg to move.

Moved, as an amendment to the above Motion, at end to insert "but this House regrets that the regulations go beyond the requirements of the European Union directive implementing the regime for the payment of artists and calls for the regulations to be replaced within six months by regulations in accordance with the directive".—(Lord Brooke of Sutton Mandeville.)

Photo of Lord Jopling Lord Jopling Conservative

My Lords, I am not sure what interests I should declare. My wife and I are occasional purchasers of works of art. I have a son who is an art dealer and a daughter-in-law who is a well-known artist.

I was astonished to listen to the opening speech by the Minister. I am even more astonished having heard the background to this case, which my noble friend Lord Brooke set out in his remarkable speech for someone who usually speaks in this House with such moderation. I have rarely heard him speak with a stronger sense of irritation than I detected this time. Even before my noble friend's speech, the Minister's speech seemed grossly complacent. I can only say that his speech was economical with the facts. Who would have thought that the Government opposed these proposals tooth and nail as they went through, threatened the Luxembourg compromise and voted against the measure? I hope that the Minister will be more frank with the facts when he winds up than he was when he opened.

One of my principal objections to this measure arises because I have been a member of the Merits of Statutory Instruments Select Committee since it started. I spent two hours at its meeting this afternoon. The committee is strongly opposed to gold-plating, and it was largely because of that that it drew the attention of your Lordships' House to this measure.

Contrary to what many noble Lords feel, I have a good deal of sympathy for giving artists a right to a share when their work significantly increases in value over the years. But I do not see the logic in reducing the threshold from €3,000 to €1,000. By my calculations, an artist whose work sells for €1,000 in a secondary or later sale after the primary sale will receive, after the 25 per cent administration costs, only slightly over £20. I wonder whether that is worth all of this—reducing the threshold—when at the bottom end of the sale an artist will receive that trivial amount.

I was astonished to hear the Minister saying, as I understood him, that the cost of administration of all of this need not be more than £1 per sale. Well, one has only to think of administration costs. What can one do for £1 in terms of staff, accommodation and materials? If that is what the Minister has been led by his civil servants to tell the House, it beggars belief. It is nonsense that administration of this sort of sale could be done for as little as £1.

I understand that most subsequent sales of works of art achieve significantly less than the first sale by the artist. As I understand it, in the majority of cases where a collector supports young artists and he purchases a work of art, the overwhelming chance in subsequent sales is that they will be at a lower price than the first sale. Someone who likes to support young artists will know that if he wants to sell a piece of work later he is likely to take a loss that may be made even bigger, because he has to pay the charge on that as well. We must realise that the implications of this measure will be to deter at the margin collectors who wish to support young artists.

I cannot help but believe that this measure is a formula for driving the art market away from this country to Switzerland, Japan or the United States. All I can plead is that the Minister will think again, take this measure away and bring it back in another form.

Photo of Lord Monson Lord Monson Crossbench 8:30 pm, 24th January 2006

My Lords, this is a perfectly dreadful set of regulations and I very much welcome the attempt by the noble Lord, Lord Brooke, to make them slightly less bad. I have absolutely no interests to declare, although my late father-in-law was quite a well-known artist; had he not died tragically young, I somehow doubt that he would have had much to say in favour of these regulations.

It is ironic that the regulations purport to deal with intellectual property, when there is no intellectual, or indeed moral, case for them at all. For a start, they benefit only random forms of artistic creativity, including, for example, collages, prints, lithographs, tapestries, photographs and ceramics hand-painted in factories, as in Stoke-on-Trent, even though in many of these categories the items are rarely signed and are therefore often untraceable. Excluded are, for example, books, including those expensively bound in hand-tooled leather; hand-crafted furniture, which can fetch thousands of pounds; expensive hand-woven knitwear incorporating original designs and expensive threads, which can cost hundreds of pounds; stained glass; musical instruments, so I believe; and, indeed, buildings—many architects consider their buildings to be works of art, notwithstanding that some people may regard some office blocks in the City of London to be the architectural equivalent of Damien Hirst rather than of Rembrandt. Illuminated manuscripts and fine replicas of 18th-century long-case clocks are grey areas. Perhaps the Minister might be able to clarify the state of affairs here.

Whether the artist gets the money to which the EU claims he is morally entitled depends entirely on how the object that he has created changes hands. If it is sold privately—or, for example, on eBay—he gets nothing whatever. The expenses of collection and of keeping tabs on every photograph or ceramic object—neither of which, as I said, is normally signed—just in case it might in the future shoot up in value to around £700 will be horrendous. All this is made worse by the Government's last-minute decision to lower the threshold from €3,000 to €1,000, approximately £680. The rake-off of something selling for this price is a princely £27.20 gross. How much of this will reach the artist after the expenses of collection? We are told—and the noble Lord, Lord Brooke, has confirmed—that the latter will average 25 per cent, but the percentage will surely be higher on lower-priced items. A fee of £6.80 could hardly cover the costs here. Like the noble Lord, Lord Jopling, I find the £1 cost of collection cited by the Minister frankly unbelievable.

In France, as the Times yesterday pointed out, the people who will really benefit from laws like this are the heirs of famous artists such as Picasso, not the small, struggling, unfashionable artist. I hope that the Government will stick to their guns where deceased artists are concerned.

The matter demonstrates how crazy the Government are to agree to further and further extensions of QMV, thereby allowing the EU to intrude still further into the nooks and crannies of our everyday lives, in the immortal words of the noble Lord, Lord Hurd. Luckily, an Irish artist, Mr. Dominic Penny, who lives in Dublin, is appealing to the European Court, claiming that the legislation is a clear infringement of his human rights. He is outraged at what he calls,

"Brussels' interference in his copyright, his rights to form a contract and his rights to say who should or should not benefit from his estate".

Let us wish him every success in his legal challenge. Meanwhile, let us support the amendment of the noble Lord, Lord Brooke, which, if carried, will at least pave the way for the legislation to be improved to some extent.

Photo of Lord Bernstein of Craigweil Lord Bernstein of Craigweil Labour

My Lords, I have the greatest respect for my noble friend the Minister, so I regret supporting this amendment but I feel that I should do so. First, I declare an interest. I am a director of, and a shareholder in, Waddington Galleries, which deals in modern and contemporary art. Because of this interest, anything that I may say in objection to artists' resale rights will no doubt be met by the legendary Mandy Rice-Davies retort, "Well, he would say that, wouldn't he?".

However, I would like to raise the issue of the minimum level at which the resale levy is payable—a point also referred to by previous speakers, who noted that the regulation established it at only €1,000, despite the European Union having set the level at €3,000. I can raise this issue with a clear conscience because Waddington Galleries' sales are of a far higher value and this part of the directive would not affect the gallery.

As the noble Lord, Lord Brooke, said, discussions within Europe about artists' resale rights have been going on for a number of years, and the British Government, and in particular the Prime Minister, have been stalwart in opposing some of the measures which would adversely affect the British art market. In the case of the threshold, the Government argued in favour of €10,000. In the Internal Market Council agreement, a figure of €4,000 was decided on but was later reduced to €3,000 as a result of conciliation between the European Parliament and the Council. As the noble Lord, Lord Brooke, has already mentioned, as a result, the Government voted against this directive.

It seems extraordinary that the Government, having opposed this part of the directive so strongly, have made it even more restrictive than the figure they had previously challenged. At this point, I should say that I do not really understand the figures quoted by the Minister about the costs of administering the scheme. According to the DTI impact assessment, the cost is considerably higher. As I understand it, at a threshold of €3,000, the artist would receive slightly more than the costs involved in collecting the money. At a threshold of €1,000, the artist would only receive the princely sum of between £18 and £20, and the total cost of collection would be approximately £40. Does that make any sense? The Dutch and Austrian Governments, who supported the UK in opposing the directive, clearly do not think so as they have already legislated to exclude sales below €3,000.

Nor did the Minister think that it made sense when he said to the House of Commons Culture, Media and Sport Committee last year that reducing the threshold below €3,000 would mean that,

"the administrative costs become an absurdly high proportion of the actual payments which will go to artists".

What, I wonder, has made him change his mind? No doubt he is trying to help the lower-paid artists, but the amount that the artist would receive is derisory. It is interesting that in a letter to the Times artists of the stature of David Hockney, Michael Craig-Martin and Howard Hodgkin argued against the low threshold of €1,000. They said:

"It will undoubtedly envelop the market . . . in red tape and it will discourage art dealers from buying particularly the work of emerging artists".

My friends in business often complain to me about government bureaucracy and red tape and I normally give a robust defence but, in this case, I would find it impossible to do so. So, perhaps, would the Chancellor of the Exchequer, who said in a recent speech to the CBI,

"for some time I have been concerned about what is called the goldplating of European regulation where in the process of translation into our own UK laws we end up with additional and unnecessary burdens".

As I said, I have the greatest respect for the Minister and I will listen to his reply with interest. I hope that he will revert to his earlier view that a threshold below €3,000 would not make sense.

Photo of Lord Dubs Lord Dubs Labour

My Lords—

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, this is not a time-limited debate. I suggest that we hear from the noble Lord, Lord Dubs. There have been two speakers from the Conservative Benches so far.

Photo of Lord Dubs Lord Dubs Labour 8:45 pm, 24th January 2006

My Lords, I shall be brief and, in contrast to other speakers, support the Government.

The information that surprised and shocked me most was that 40 per cent of British artists earn less than £5,000 per annum. If we want flourishing art in our country, where we have, and encourage, creativity, we must look at the well-being of young artists. If this measure helps young artists, it is surely justified. After all, most artists have to sell their works of art cheaply at the start of their careers, before they have made any reputation for themselves. This measure is intended directly to help those artists start their careers and get a little bit more for the work that they have created.

I appreciate the issue of the threshold, about which the noble Lord, Lord Brooke of Sutton Mandeville, argued very strongly. On the other hand, some EU countries have set a much lower threshold. It is right that the Government seek to achieve a balance between the threshold and keeping bureaucracy to a minimum. It has been said that this will damage the British art market altogether. I am not convinced of that argument. If someone were to send a picture abroad to be sold—say, in New York—and then it were to be returned, there would be transport, handling and insurance costs, the gamble on the strength of the pound against the dollar, comparable rates of sales premiums—or they might not be comparable—and import VAT.

Import VAT is surely a significant factor in the equation: a tax on imports into the EU from non-EU countries, which is now 5 per cent across the EU. There is no import VAT for movements within the EU. It would therefore cost an EU buyer significantly more in import VAT to buy in New York than it would cost to pay resale royalties in London. If the buyer is a European national, they would be required to pay the 5 per cent import VAT on the value of the painting, or other work of art, to return it to the EU.

If the painting is valued at £1.4 million, for example, import VAT would be £70,000, compared with the maximum royalty payable of £8,500. The argument that works of art will be diverted from this country simply does not stand up in the face of those figures. Of course, there is a sliding scale. At a threshold of €1,000, an estimated 50 per cent of eligible artists will benefit.

I do not always agree with the Government, but I believe that they have got it right in this instance. They are bringing forward the measure in such a way that it will help many British artists.

Photo of Lord Luke Lord Luke Deputy Chief Whip, Whips, Shadow Minister (Culture, Media and Sport (Also In Defence & Wales Teams), Culture, Media & Sport, Shadow Minister, Defence, Shadow Minister, Wales

My Lords, I congratulate my noble friend Lord Brooke of Sutton Mandeville on securing this debate on an issue of such crucial importance to the art market. I join with my noble friend Lord Jopling in remarking on the brilliance of his speech.

This droit de suite directive has been described to me as the darkest cloud on the horizon for the international competitiveness of our art market—a statement with which I strongly concur. As a dealer in watercolours myself—I state that interest—I am also a lover of art and a Conservative. I have opposed this paradoxical directive from the very start. I strongly believe that it will be highly detrimental to the British art market, and will seriously damage that part of it which depends on imported goods.

The 5 per cent import VAT mentioned by the noble Lord, Lord Dubs, has already considerably damaged the British art market, in driving the very top of the market to, principally, New York, whereas we used to have almost a monopoly.

I welcomed the general cross-party opposition to the original directive, and was somewhat surprised by the Select Committee's response to the issue. It was upsetting that Her Majesty's Government finally had to adopt the directive on 27 September 2001. However, it is more upsetting, now that we appear to have no option but to implement the directive, that this draft statutory instrument gold-plates the directive, rather than supporting most of the significant concessions secured by the Government during negotiations. As the Merits of Statutory Instruments Committee has highlighted twice in its report:

"the Regulations go beyond the minimum required by the Directive in two respects. These are: the minimum price threshold for a sale to be liable to resale royalty, which the Regulations set at 1,000 rather than 3,000 euros; and the provision made in the Regulations for joint liability of the seller and an art-market professional involved in the sale".

We have heard about that already.

The British Art Market Federation argued that considering the force of the British opposition, this gold-plating is particularly inappropriate and unnecessary and that it is inconsistent with stated government policy on EU directives. I look to the Minister to give firm assurances today that this will be altered. I suggest that the current draft SI is taken away and a new draft SI produced and published in its place.

As the House of Commons Select Committee pointed out in its report The Market for Art:

"The state of the visual arts is a useful proxy for the health of our cultural life".

Britain currently leads Europe in the provision of services for the buying and selling of art. Our country has more than 50 per cent of the European art and antiques market and 25.3 per cent of the global market. It is a market made up of around 10,000 businesses that provides employment for more than 37,000 people. The UK art market is particularly dependent on cross-border trade. In this key respect, it is the only serious global competitor of the United States. This directive, and the subsequent SI that we are considering today, will materially reduce our competitiveness, encouraging the displacement of the market to the United States and Switzerland which, not surprisingly, have expressed no intention of following suit when the levy comes into force in Britain. This will cost our market millions in revenue and a significant number of jobs.

Research in countries that are already enforcing the droit de suite has shown that the benefit to artists has been virtually insignificant, as did the Patent Office's initial compliance cost assessment in 1996, Market Tracking International's report in 1999 and the Patent Office study in 2003.

Will the Minister explain clearly to the House why the threshold below which the droit de suite royalty is not payable has not been set at €3,000? I believe that there is an error in the evidence that the Design and Artists Copyright Society gave to the Select Committee. On the one hand, Her Majesty's Government say that they want to help struggling artists, but on the other, they put forward an SI that will work against them. That is a paradox I cannot condone or, indeed, understand.

The most significant concession gained by Her Majesty's Government in the negotiations was the permitted derogation by which the introduction of the directive for those entitled to royalty for up to 70 years after the artist's death can be delayed until at least 1 January 2010. Why have Her Majesty's Government not taken advantage of that provision and extended the date of derogation until 2012? That could have been one occasion where gold-plating would have been worth while.

Finally, why have Government continued to go down the gold-plating path, particularly as there are very few examples in UK copyright law of such a system? Indeed, the Merits of Statutory Instruments Committee suggested that it may have been more appropriate to adhere to the minimum requirements on these points in the initial implementation of the directive.

I find myself in the unusual position of supporting the issues that the Government fought for, but not the recommendations of the Select Committee or the SI as we see it in front of us today. I hope that the Minister will not disappoint me and will provide assurances that the gold-plating of this proposed regulation will be removed and that Her Majesty's Government will now implement all the concessions they gained in negotiations. That is the only way we can make sure that our art market remains one of the strongest in the world.

Photo of Lord Willoughby de Broke Lord Willoughby de Broke Conservative Independent

My Lords, when the Minister started his speech and talked about concessions, I thought he was going to come clean with the House and explain the massive concessions he has made in agreeing to this regulation and this directive. But the truth is that this is yet another massive cave-in to the European Union at the expense of Britain's true interests.

What is so depressing about the whole saga, which, as my noble friend Lord Brooke says, has been dragging on for up to 10 years, is that this Government earlier recognised the damage that the directive could cause to the London art market and fought London's corner very hard indeed. The Government then recognised the importance of the art market to London. London has, I believe, 24 per cent of the world's art auction market—far more than the rest of the European Union put together, and 40 per cent of the total British art market is imported specifically for sale here in Britain. But this whole sorry saga shows that the much-vaunted strong voice in Europe is nothing more than what the Times yesterday called in its leader the "bleat and retreat".

The Government were always against the directive. I understand that the Prime Minister personally got involved in trying to stop it being put into law, and, at one point, threatened to use the veto. But, in the wonderful world of the EU social model, one country's competitive advantage is another country's competitive disadvantage and must be, therefore, harmonised—that is to say, eliminated—and hang the economic and social consequences.

This directive was subject to the qualified majority voting procedure, as outlined by my noble friend Lord Brooke. To stop it the Government needed to find enough allies, which they did, but unfortunately that blocking minority alliance failed to hold, and here we are this evening passing the regulation into law. What price our much-vaunted seat at the top table? It is more like a high chair in the corner, of absolutely no consequence.

The Times leader that I mentioned earlier ended by saying that Parliament,

"which tends to let EU-based regulations slip through, must act to protect Britain's status as a global centre for artists and art".

I have news for the Times: Parliament cannot change so much as a comma or syllable of these regulations. To do so would be contrary to EU law, which is supreme—so much for our parliamentary sovereignty and democracy.

The final pathetic note in this sorry story was struck by members of the London Assembly the other day when they proposed that their mayor, Ken Livingstone, should try to persuade New York and Zurich art markets to introduce the droit de suite there. I imagine that that was just before they went down to the garden to talk to the fairies about what they wanted for breakfast.

This again demonstrates with complete clarity that when it comes to European legislation neither this place nor the other place has any role to play whatever. We have no power, the powers lie in Brussels; and shame on us for agreeing to that.

If my noble friend Lord Brooke decides to vote tonight on this amendment, I will be the first to vote in his Lobby.

Photo of Lord Inglewood Lord Inglewood Conservative

My Lords, I should declare an interest: my wife is a professional photographer who sells prints from time to time. I live in hope that she may exceed the threshold in the value of her works. I am also chairman of the Reviewing Committee on the Export of Works of Art and could conceivably be affected in that capacity by the possible export of works by living artists, although the 50-year rule makes it unlikely.

In 2000–01, when this matter was under consideration in the European Parliament, I was the legal affairs spokesman for the Conservative Party and the matter was considered principally in the Parliament's Legal Affairs Committee. I was also, as it happened, an alternate member on the Conciliation Committee, but because of the outbreak of foot and mouth I was unable to attend the meeting.

At that time I was convinced by the Government's arguments that the proposal for the droit de suite was not in the best interests of Britain, Britain's art market or its artists. As such, with considerable difficulty, I persuaded my Conservative colleagues that we should stand shoulder to shoulder with the Government on this issue. I do not apologise for doing that. I believe we did the right thing, and in similar circumstances I would like to think that I would do the same again.

However, having seen how the Government have changed their ground subsequently, although it no longer affects me directly, I am disheartened. It is not an encouragement, in a forum where there is no government and where national interests come together from time to time, to the Opposition parties in this country to stand with the Government of this country to fight for Britain's interest if we subsequently find that the picture at home is so unilaterally dramatically changed.

Although we lost the votes in the European Parliament, had the British Conservative Party not been part of the Group of the European People's Party and European Democrats, we would not have been able to secure the number of the votes that we did. They not only felt sympathetic towards us; they then actually voted for us. Some in my party want to take the British Conservative MEPs out of that group. If that happens, what I have just alluded to will no longer happen and British interests will, in my judgment, suffer.

Three things puzzle me about the legislation. One of them has puzzled me throughout. In the Commission's consideration of whether to introduce the droit de suite, the effect on the London art market of the possible emigration of sales outside the Community was of de minimis importance. How was it necessary to introduce the legislation in the first place in the interests of creating a single market? A fundamental intellectual schism runs through the argument for the legislation. If I am right about that, the basic legislation has been put on the statute book in breach of the doctrine of proportionality.

My second question concerns the negotiation to try to extend the scope of the Berne convention. A moment ago, I mentioned the support that we receive from our colleagues in the EPP-ED group. A considerable amount of that support came from the chairman of the Legal Affairs Committee, Ana Palacio, subsequently Foreign Minister of Spain, who was anxious to take the matter forward in the context of negotiations on the Berne convention, so that we would end up with a droit de suite across the globe. Whatever else had happened, that would have created a level playing field for the London art market. That seems a reasonable way in which to take the matter forward if the Government remain wedded to their present position.

Finally, what is the relationship between the European legislation and Article 295 of the treaty? Article 295 is straightforward. It states:

"This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership".

In his opening remarks, the Minister referred to the law of copyright and was quite rightly picked up by my noble friend Lord Brooke. The law of copyright was referred to as the measure for the creation of the completely new, novel law of property being introduced into this country by the legislation. Some countries have droit de suite; others do not. In this country, droit de suite has hitherto been a form of legal property unknown to our courts. However, under the legislation, the directive creates the right of droit de suite in this country. It is expressly stated in the treaty, in Article 295, that the treaty shall in no way prejudice the rules in member states governing the system of property ownership. Surely, what we now have under the legislation is in breach of the terms of the treaty.

Photo of Earl Howe Earl Howe Shadow Minister, Health 9:00 pm, 24th January 2006

My Lords, I intervene briefly in this debate. In doing so, I declare an interest as chairman of LAPADA, the largest UK trade association for fine art and antiques dealers. I endorse in every particular what my noble friend Lord Brooke said and also what I might call the macro-political considerations so powerfully set out just now by my noble friend Lord Inglewood. It is not my intention to repeat the arguments that they have so ably articulated; but perhaps I may single out a few points of emphasis.

As has been said, the art market as a whole was extremely encouraged by the stance taken by Her Majesty's Government and the personal commitment of the Prime Minister, when the directive on artist's resale right was being debated in Europe. Throughout the negotiations, the Government took the line that if there had to be a directive of this nature, it should be issued in a form which did the least possible damage to the competitiveness of the UK art market. It is perhaps worth reminding ourselves that it has not always been in London's favour. London became the pre-eminent centre of the European market only in the 1970s, following the imposition of a tax on the art trade in France in the 1960s and the imposition of droit de suite in Germany in the 1980s.

As we have heard this evening, the concern of many is that droit de suite when rolled out across the EU as a whole will make a key part of the European art market instantly uncompetitive in comparison to dealers and auction houses operating, for example, in New York, and that as a direct result we shall see London diminishing in importance as a global centre of fine art trading. The impact of the directive will be felt not just in relation to high value works of 20th century art. The knock-on effect will hit many other sectors of the market as well. Where you have a high value collection that is to be consigned for sale, it will typically be consigned as a whole to wherever in the world is most advantageous for the seller. Furniture, jewellery and old masters will all be caught up in that. So the Government were entirely right to try to minimise the impact of the directive on the UK.

One of the Government's key negotiating objectives during that process was, as we have heard, to try to maximise the threshold below which droit de suite would not apply. They argued that the threshold should be no lower than €10,000. They voted against the directive when the threshold had been reduced to €3,000. So it was unsurprising when the consultation document was issued by the Patent Office last year to see a proposed threshold for the levy of the highest possible amount allowed for in the directive—€3,000. It seemed inconceivable then, and it therefore almost defies belief now, that, having taken that stance and having listened to all the representations on this issue from the UK art trade, the Government should now have performed this U-turn and have created a levy threshold at a mere €1,000, which is lower than in the Netherlands, lower than in Austria and lower even than in Germany.

It is very hard to see what benefit the Government believe will come out of this. As the Minister said, the idea is that poorer artists should receive some financial reward on the sale of their work. But on a sale at €1,000, we are talking about very small sums of money. At that sort of level, the net royalty is dwarfed by the administrative costs of delivering it—not only the costs incurred by the collecting agency, but also those of the dealer or auction house.

I do not know what evidence has persuaded the Government that extending the scope of the levy to sales below €3,000 would benefit predominantly poorer artists. That is the argument that they have advanced, even though I have not seen any evidence produced to support it. The recent survey by Graddy and Szymanski, mentioned by my noble friend, found that for sales between €1,000 and €3,000 the value of droit de suite is, in their words, negligible.

It should not be forgotten that at the lower value end of the market, we are typically looking at resales of art not by major auction houses, but by dealers, many of them small businesses. The administrative burden of coping with the levy will therefore fall disproportionately on such businesses. What will that administrative burden be? First, it is to identify those works that they are selling to which the levy will apply; to build the levy correctly into the sales invoice; to submit a return to the collecting agency; to check back the agency's calculations; to pay over the levy; and to keep appropriate book-keeping records. They will also need to amend their contracts of sale. The estimated administrative cost of all that is supposed to be £1. I fail to see how that figure is borne out, and I put it to the Minister that the estimate provided by BAMF is much higher. Further, the figures he spoke of have been comprehensively criticised by BAMF, even though so far as I can see that critique has not even received a comment from the Patent Office.

Not only have the Government gone further than they need have done in implementing the directive, they have placed unnecessary burdens on small business owners for no commensurate benefit to artists. That cannot be in the national interest, and in the light of everything the Government have said and done hitherto, I believe that the art market has every right to feel badly let down.

We can only press the Government to revise their decision. I believe that the minimum which should be done by the Minister's department is to follow the proposals put forward by Graddy and Szymanski in their report. Those are to monitor the changes during the next few years, not only in the UK art market but also in art markets elsewhere in the EU and other markets outside; to monitor the trends in the number of works imported into the UK from non-EU countries; and to ask dealers and auctioneers to tell them what effect they believe droit de suite is having on their businesses. If, as seems inevitable, the Minister is unable to accede to the terms of my noble friend's Motion, I hope that at the very least he will feel able to give us those assurances.

Photo of Lord Freyberg Lord Freyberg Crossbench

My Lords, first I declare an interest as an artist who at some stage could benefit from the new measure. When I last spoke on this issue, on 10 December 1997, I was opposed to the whole idea of artists' resale rights because I felt that there was a different principle involved with the sale of art and that of other creative mediums such as writing and music. I was concerned too about the increased bureaucracy that introducing resale rights would involve, and the fact that only the most successful artists stood to benefit. We have heard particular mention of a small number of deceased artists such as Matisse and Picasso, as has happened in countries such as France which already has resale rights. In addition I was anxious that the levy might have a potentially detrimental effect on the UK's position as the art market capital of Europe.

While my reservations about many of these issues still stand, the analysis undertaken by the DTI and others has persuaded me that the effect on the art market will not be as severe as has been widely announced by its representatives. I further believe that the ruling could actually benefit more artists than initially appeared to be the case. The reason is the Government's adoption of the lower, €1,000 threshold for liability to resale rights rather than the €3,000 minimum laid down by the European Parliament. The Government have done the right thing in opting for the lower price threshold in order to allow as many artists as possible to benefit from the resale rights, and not just better-off and often deceased ones.

Much has been made by those representing the art trade of the increased bureaucracy that will flow from going beyond the EU's minimum threshold. While I share their concern about the added burden for art dealers and auction houses, and worry that dealers could be tempted to overstate the costs in order to offset them, it seems nevertheless unreasonable that artists who are more in need of extra income should be left out. To have complied with the €3,000 minimum would not have made greater sense than what we have now. The lower threshold significantly increases the number of artists who benefit from the resale right and broadens the scope to include more photographers, illustrators, crafts people and so forth. Surely that was the best argument for the directive in the first place, although I cannot pretend that the remuneration for the majority who qualify is anything but small.

The British Art Market Federation has understandably argued that with works of art selling for between €1,000 and €3,000 the cost of administering the resale right is so disproportionately hefty it outweighs the benefit to the artist. However, it cannot be stated strongly enough that the majority of artists make very little money from their work, even those who are comparatively well known: for those on an income below the minimum wage—which is often the case—even the small sums that come from resale rights are welcome.

Another point worth making, and to me one of the strongest cases for resale rights, is the fact that artists frequently produce their best work when young and selling for low prices. However, they derive no benefit when this period of their work becomes sought after and is resold for ever higher sums. The new regulations will at least do something to address this problem.

Another important and little publicised benefit is that artists are now allowed to find out exactly how much their works have resold for—something that has often been a bone of contention—and to have recourse to the courts if this information is withheld. This will create greater transparency and greater trust between artist and dealer.

While it is difficult at this stage to calculate the number of works of art that will be eligible for the resale rights, it is interesting to note that in 2003–04, only 1,758 relevant sales on the Arts Sale Index would have been for living artists, with another 7,696 for deceased artists. The Arts Sale Index is made up of sales of art in the UK auction houses and is generally estimated to account for half the sales, with those by dealers making up the other half. This would have involved £1.8 million of royalties payable to living artists—£1.1 million to British ones. If the right were applied to heirs of deceased artists as well—which is due to happen in the UK in 2010—then £11.4 million of royalties would be due. One strength of the way the royalty system has been set up is that the seller and the agent—dealer or auction house—of a resold work of art costing more than €1,000 are jointly responsible for ensuring that the resale rights are paid.

On a negative note—and here I entirely agree with the noble Lord, Lord Brooke—the Government have been shamefully slow in arriving at the package that is being set before us this evening, in spite of being fully aware of it since September 2001. I have enormous sympathy with the art dealers who are expected to cope with numerous unresolved issues such as how everything will work in practice, and vague definitions they now have no chance to question, while artists have high expectations of quick payment.

Finally, as someone who makes video work, I draw attention to a deficiency in the definition of a work of art under the regulation, which refers only to "graphic or plastic art", omitting the increasingly popular area of computer-based pieces such as video, installation, sound and web-based art. This means that the predominantly video-based works of well-known artists such as Gillian Wearing, Douglas Gordon and Jane and Louise Wilson is not technically covered by the new regulation. I am sure that is not intentional, so I ask the Minister to review and remedy that at the earliest possible stage. Speaking to DACS—the Designer and Artists Copyright Society—I understand that the wording of a work of art is likely to have originated from the definition in Part 1, Chapter 1, No. 4, of the Copyright, Designs and Patents Act 1988, which mentions the category of film, but not as a work of art, and which similarly needs to be updated.

With all my reservations, I wish these regulations success, and really hope that a number of struggling artists get real benefit from them. Therefore, I am unable to support the amendment proposed by the noble Lord, Lord Brooke.

Photo of Lord Marlesford Lord Marlesford Conservative 9:15 pm, 24th January 2006

My Lords, I support the extremely persuasive speech of my noble friend Lord Brooke. Unlike a number of noble Lords who have spoken tonight, I have no interest to declare and I certainly have no expertise in the art market. I speak in this debate because I am deeply shocked that this Government, who have made so much of deregulation or better regulation and lifting from the citizens of this country the burden imposed by the sort of regulations of which this is an appalling example, should be producing it tonight. It makes the position very difficult.

We have heard an awful lot over the past eight or nine years about joined-up government. I cannot believe that the unit in the Cabinet Office which is responsible for lifting the burden of unnecessary regulation is enthusiastically supporting the noble Lord, Lord Sainsbury, today. Still less can I believe that its members have helped him to write his speech. The people who have helped him to write his speech obviously know very little about business. What makes it so appalling is that the noble Lord, Lord Sainsbury, was once himself a distinguished—perhaps even successful—businessman. The fact that he was able to make the speech that he did, producing the absurd arguments about the administrative costs, is a terrible example of the way in which Ministers are inclined to come to the House and parrot what their civil servants give them. I really expected better of the noble Lord, Lord Sainsbury. If he had spent two minutes thinking from his own business point of view, I do not believe that he would have produced any of the figures he has given for enforcement, which have been so devastatingly exposed by a number of my noble friends.

I have read very carefully the statutory instrument and the very useful Explanatory Memorandum on the Artist's Resale Right Regulations. I was alerted to the subject some weeks ago by a letter in the Times from the British Art Market Federation, by which I was appalled. In fact, as the Minister may remember, in the economic debate I cited the three worst examples of where the Government have gone back to over-regulation. As I read the guidance in the Explanatory Memorandum I found more and more examples of how ill-conceived this all is.

Let me deal with the argument put forward by the noble Lords, Lord Freyberg and Lord Dubs, about the need to help struggling artists and so on. We can all be in favour of that. But surely—and it is another example of a lack of joined-up government—the Government are in the business of trying to make help for needy people more efficient. To invent or adopt or accept a system such as this as a means of helping people is wildly cost ineffective.

It also suggests to me that there is great scope for evasion, avoidance and, indeed, skulduggery. Obviously there is a great deal in the regulations about there not being an incentive for people to cheat but, of course, it is very unclear who the dealers actually are. As €1,000 is a very low figure, there will be more activity—particularly at the lower end—and far more payment in cash. That is not particularly desirable, but it will happen because that is how human beings work. People will set up to act as representatives or agents to avoid paying.

In Schedule 2 to the draft statutory instrument there is a fascinating list of countries outside the EEA whose citizens will benefit from this. I doubt that I am the only Member of your Lordships' House to receive spam e-mails—I suspect the great majority of Members receive them—which manage to get through the brilliant House of Lords computer system. These spam e-mails—mainly from African countries—offer us generous shares in millions of pounds if we would like to give them certain financial details. I usually delete them at once but, if I have a moment or two to spare, I sometimes read them. If they are well written I will usually reply, "Pull the other one". That usually ends the problem. Occasionally I get a reply from someone who says that he does not understand what I mean, in which case I then reply, "Then pull them both". That is the way I deal with that particular problem.

I am quite sure that there are people with great enterprise in some of these countries who will, on reading the statutory instrument, represent themselves as artists—maybe dead or not dead, but lesser known. They will get their names and they will apply to this bureaucratic body which is being set up for their share of the lolly. This will have a most deplorable effect and not just on the art market, on which I am not an expert. Before the Government legislate they have to work out the practical consequences and methods of enforcement. They have clearly failed to do so. What is so sad is that, as we have heard from a number of noble Lords, the Government used to be opposed to this nonsense. That makes bringing it in now all the more deplorable.

Photo of Lord Clement-Jones Lord Clement-Jones Spokesperson in the Lords, Culture, Media & Sport

My Lords, I thank the Minister for his introduction of the regulations and the noble Lord, Lord Brooke, for giving us the opportunity to debate these regulations so vigorously.

I and my honourable friends in another place have considered very carefully the various reports, including that of a Select Committee of the other place, the Merits of Statutory Instruments Committee and, most recently, the report of the London Assembly Economic Development, Culture, Sport and Tourism Committee. We have held meetings with representatives of the British Art Market Federation and DACS.

Despite the vigorous arguments put forward by BAMF, we have come to the conclusion that the Government's approach is correct and that the €1,000 threshold set out in the regulations is right, as is the decision to require collection by collection societies. That is the conclusion that the Culture, Media and Sport Committee came to last year, and we have reached it because of very similar motives.

We on these Benches are not great fans of the resale right; we believe that it is an extremely blunt instrument, for many of the reasons put forward today. The original reservations of the noble Lord, Lord Freyberg, were entirely correct. However, on the basis that it is a fait accompli in EU terms, it is important that it benefits young, newly emerging artists and not simply established or better known ones—or, indeed, their heirs.

At the €1,000 level, it is estimated that some 50 per cent of living artists will benefit. This is where I am at variance with the figures put forward by the noble Lord, Lord Brooke.

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative

My Lords, the Arts Council thinks that there are 96,000 artists. In a submission to parliamentarians, DACS suggested that there might be 130,000. We are talking about a figure of less than 1,000. How does the Liberal Democrat Party make that 50 per cent?

Photo of Lord Clement-Jones Lord Clement-Jones Spokesperson in the Lords, Culture, Media & Sport

My Lords, that is the evidence that has been put forward by a number of bodies, and it is what we rely on.

That, surely, must be the right way forward. It is clear that the Government have changed their mind in terms of where the threshold should lie, but we believe that they are right to do so.

The countervailing argument put forward by BAMF is strongly supported by the report from the London Assembly's Economic Development, Culture, Sport and Tourism committee—that the imposition of a lower threshold will greatly damage the competitiveness of the London art market. That report faithfully reflects concerns about trade going to New York and Zurich but it does not give any conclusive evidence of this. In any event, such evidence as there is affects the higher priced works of art, not those at the €1,000 to €3,000 level. I accept that at the top level, that may be the case in future, but there is no flexibility in applying resale right at that higher level. It is true that, as the London Assembly report points out, multiple costs add up, but I do not believe that this is a reason to penalise less well known artists.

Let us also not forget that there will be a maximum of €12,500 of royalty payments, the exclusion of works sold on within three years for less than €10,000 and the exclusion of works of deceased artists until 2010. I welcome the Minister's statement about the application for permanent derogation. I strongly agree with the London Assembly committee report on the question of monitoring. I want the Patent Office to publish details of how it intends to measure the impact of the droit de suite on the UK art market. In particular, the committee wanted to assess the impact on the sale of contemporary works, the diversion of the market from London and a full cost/benefit analysis of the application of the minimum price at which the directive applies. Those are all sensible suggestions and I hope that the Minister will reply positively.

As regards the collecting society aspect, although DACS is well known in this field, I do not believe that there should be a monopoly. If another body or commercial organisation wishes to perform this role it should be able to do so.

I do not know what weight to attach to the Merits Committee report, but it does not clearly state that the regulations are an inappropriate way of implementing an EU directive. The committee's reasoning does not lead to that conclusion.

Finally, I am in good company. The noble Lord, Lord Beaumont, who represents the Green Party in this House and has a much better collection of works by young artists than I do, has asked me to indicate that he also agrees with the Government's approach.

Photo of Viscount Astor Viscount Astor Shadow Minister (Culture, Media and Sport), Culture, Media & Sport 9:30 pm, 24th January 2006

My Lords, the question that the Minister failed to address when he introduced this order was why the Government have changed their mind. Indeed, he did not really say that they had changed their mind: he skipped over that point. It was demonstrated by the speech of my noble friend Lord Brooke, who said almost everything that can be said in this debate and destroyed the Government's case. Why did the Government change their mind? There is no requirement under the directive to charge a retail levy on sales below €3,000, so by taking this voluntary decision to do so, the Government will have added considerable costs and complication which will affect smaller businesses.

As we have heard from many of those who spoke this evening, this is directly against the advice of the Chancellor of the Exchequer, Gordon Brown, who says that he is concerned about,

"the goldplating of European regulation where in the process of translation into our own UK laws we end up with additional and unnecessary burdens".

What is more, he went on to say:

"And going forward we will rigorously enforce guidelines prohibiting goldplating".

There is not much enforcement here—not even an unrigorous enforcement.

In the Explanatory Notes to the order under Article 4.1.5, the Minister says:

"The benefit of this measure to UK artists together with the cost-benefit analysis makes this an exceptional case justifying implementing beyond the absolute minimum required by the Directive".

That is an extraordinary statement as it directly contradicts what the Minister said to the Select Committee in March 2005, where he said that applying a level below €3,000 would mean that the higher,

"administrative costs become an absurdly high proportion of the actual payments which will go to artists".

How does the Minister justify what he said to the Select Committee and what he said this evening? I fail to understand.

The Minister attempted to justify it by claiming that the costs could be £1. If one replied to a request by letter, the stamp would cost 30p. What do the envelope and paper cost? The idea that a reply to DACS could cost £1 is ridiculous. I thought that it was a joke at one point. The time to employ someone just to deal with that whether by letter, fax or email, would be more than a pound. It is ridiculous. The art market itself thought that it would cost about £30. The Minister had the good grace to admit that the variations were between 46p and £50, but the idea of claiming that it was £1 is ridiculous. My noble friend Lord Howe amply demonstrated that in his intervention.

It is even stranger when the Netherlands and Austria, both of which will be introducing this right for the first time, have opted to take advantage of the €3,000 limit. Now Germany, for example, which was one of the principal supporters of the directive, plans to exclude sales below €1,500 and may yet opt to exclude sales below €3,000. The French, who after all invented the whole process, seem to be dragging their feet and are not going to implement the directive on time at all. Perhaps the Minister could tell us what their timetable is. It is extraordinary that we are going to implement a European directive when the people in Europe who have been pushing it are not going to do so themselves.

I do not accept the argument that the measure will necessarily drive a lot of sales abroad, because at the lower end that is difficult to do; at the higher end, it certainly will, and we have seen that with VAT, which has affected the art market, and has meant that sales have gone to Geneva and New York. But it will impose a whole load of costs on dealers, which will affect the value of that work of art, which will then be detrimental to the artist. So it is not going to work.

The London Assembly, which is not notably a strong supporter of a vibrant business economy, has criticised the Minister, but he did not seem to take much note of that. The Minister was extraordinary dismissive, too, of the report from the Merits of Statutory Instruments Committee, on which my noble friend Lord Jopling sits. When the committee says that we may be inappropriately implementing European legislation, to dismiss that as the Minister did by saying that the committee did not study it closely is simply dismissive. The Government should address the issue properly, when the Merits of Statutory Instruments Committee comes up with something, and I am afraid that the Minister did not do so—and I have to say that it is not the first time that it has happened in this House. My noble friend Lord Inglewood asked a number of questions about EU law, which, again, I hope that the Minister will respond to.

The House of Commons Culture, Media and Sport Committee, in its rather quick report, recommended a lower threshold; but it also recommended that there should be a review, and that we should see what the impact of that would be. Can the Minister give an assurance that in a review he will also look not at the total impact but at the impact of the limit? Will the Government be allowed to raise the limit? Can he assure me that we will not be as we have been under other EU legislation, such as that on VAT, whereby once you have set a limit it is impossible to change it?

I shall be brief as it is getting late and I know that the Minister and my noble friend Lord Brooke will want to respond. As the Times leader says, what the Minister has done is to devalue and undermine the British position in the bigger battle over whether the resale right should after 2000 extend to dead artists. He has let down some of our European partners when we had that clear blocking majority, and those partners must be surprised. But the most surprising thing of all is the Government's whole response. What they did—and we supported them—was to go to Europe and win the battle, and then they came home and thought about it and surrendered. It is an extraordinary state of affairs.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, following the approval of these regulations, artist's resale right will be introduced in the UK. In response to the noble Lord's amendment, I believe I have dealt with some of the most substantial issues in my opening speech, but I shall add the following points.

Before I do so, I should say to the noble Viscount, Lord Astor, that in no way did I say that the Merits of Statutory Instruments Committee did not take the issue seriously; what I said was that it did not give any weight to the interests of the artists, which is a quite different issue.

I declare a life-long interest. I have collected works of art all my life. My father put together one of the great collections of modern art in the 20th century, and I was brought up in a world of artists, art dealers and auction houses. It is a world that I know very well and a world for which I have a great deal of respect.

I should also make it clear that what we are debating is whether the threshold should be €1,000 or €3,000. That has absolutely nothing whatever to do with the question of the relocation of sales of works of art; at the top end, there is no way that works of art that are worth €2,000 are going to be taken to Switzerland or America to be sold. That is a complete fantasy. What we are talking about is a question of balancing costs and benefits to artists. The noble Lord, Lord Brooke, says that what we have done will shake the confidence of the art market. At a time when we have made it clear that we will seek to make the derogation for deceased artists permanent, I really cannot see that that argument has any force. The noble Lord, Lord Luke, asked why we had not made use of the derogation for deceased artists to 2012. The answer is that you can do that on the basis of the experience that you have had before that period; you cannot do it now when you have no experience of it. We will have to do surveys of what has happened and what the impact has been, and then in due course, around 2009, on the basis of that evidence make the case for extending the derogation.

I also make it clear—when people talk about gold-plating and piling on regulations—that the administrative systems will have to be put in place whether we are talking about a threshold of €1,000 or of €3,000. Those administrative systems have to be put in place; the question is whether they will be used for a larger number of works of art.

I will turn to the question of the figure of €1,000 or €3,000. By laying the threshold to €1,000, we calculate that about 800 extra works of art are likely to be included. Even if we take what we believe to be an extraordinary cost per transaction of £28 produced by the British Art Market Foundation—on the basis of no calculation whatever but just a figure taken out of the air—the total cost of those 800 works of art would be £22,400 for the whole art market per annum. That has to be seen in the context of the total value of the UK's art market of £4.6 billion. I have very great respect for the art dealers of this country. I believe that they would consider that paying £22,400 to help young artists—who at the end of the day produce the material that their livelihood is based on—was a very small price to pay.

I say that it is an extraordinary figure because it is almost impossible to see how one would get a calculation as high as that. I agree with the noble Earl, Lord Howe, that quite a lot of operations have to be done, but they do not have to be done for very many items. I also agree that they would have to check DACS's figures, but even then I cannot see how you could possibly get to a figure of £28. I say to the noble Lord, Lord Marlesford, that I was a finance director for 17 years. I have looked at cost estimates, and £1 is a great deal nearer the reality in any competent organisation than £28. Indeed, at the last meeting that I had with the noble Lord, Lord Brooke, in happier times, he congratulated me on the thoroughness with which we were looking at the figures. Let us be clear; we have looked at these figures in detail, and I am absolutely convinced that the figure is much closer to £1 than £28. Even if you take the figure of £28, the total cost of the difference between €1,000 and €3,000 is £22,400.

Photo of Lord Jopling Lord Jopling Conservative

My Lords, I am grateful to the noble Lord. In his opening speech, he told us that the cost was £1. He now tells us that it is nearer £1 than £28. Does he not agree that the implication of that is that he was totally wrong to try to fob us off with £1 earlier on?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

No, my Lords. I was saying very clearly that I still think it is closer to £1. I did not say that it was £1; I said that it is in that order of magnitude. I have not just been saying that it is £28. I said that even if you think that it is £28, the total cost is £22,400. I very much doubt whether that will have a major impact on the economic viability of the UK art market. You have only to calculate how many pictures at what price at a reasonable buyer's premium to see that the odd picture would cover the whole cost of the whole UK art market. Noble Lords may think that that is gold-plating, but this is a fake—we are talking about a modest dab of moisture, not gold-plating.

The noble Lord, Lord Brooke, drew attention to the comments that I made to the Select Committee. I have no problem with those comments. The whole point of consultation is to listen to the views put forward and to try to assess their validity and value. As we assessed the evidence, it became clear that many of the figures that we were being given were based on no calculation whatever; they were simply plucked from the air. The best calculations we had—they were not simply plucked from the air—were closer to £1 than £28. I gave BAMF every opportunity to challenge the figures and produce alternative calculations; it did not, which is why I assumed that it had no calculations and that no calculations had been made.

A number of other points were made. The noble Lord, Lord Inglewood, raised the Berne convention. It was always extremely optimistic to think that the Swiss and American dealers would say, "What a good idea. We will go along with the artist's rights in this matter". We can use this as a way of going back and getting a permanent derogation on the basis that that has not come to pass. He also mentioned Article 295, which talks about prejudicing property rights. We do not believe that the regulations do that at all.

Photo of Lord Inglewood Lord Inglewood Conservative 9:45 pm, 24th January 2006

My Lords, surely what has happened here is that, as the law stands, the owner of a work of art owns the entitlement to the entire proceeds of sale of the item in question. After the legislation comes into effect, he will own only an entitlement to part of the proceeds of the sale of the work of art. Surely that is therefore a change.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, on that basis, obviously the fact that a sum of money is deducted for buyer's premium could be said to be derogatory to the property rights as well.

Photo of Lord Inglewood Lord Inglewood Conservative

My Lords, with all due respect to the Minister, that is not correct, because the buyer's premium is deducted as the result of a contract. This is deducted as the result of a piece of legislation.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, I still cannot see that the provision in this context prejudices that; that is the legal view that has been taken.

I agree very much with the noble Lord, Lord Freyberg, in what I thought was a rather objective assessment of the regulations. So far as European competitors are concerned, it seems that there is no pattern. The current available figures suggest that Germany, Denmark, Greece, France and Hungary will all come under €1,000; Italy, the Czech Republic and probably Ireland will be about €1,000; Belgium and Spain are between €1,000 and €3,000; while Austria, the Netherlands, Luxembourg, Portugal and Cyprus are at €3,000. Across Europe, people are taking different positions on this.

The noble Lord, Lord Freyberg, raised the question of works of video art and whether they are covered by the definition of works of art. We do not think so, because we do not believe that they come in the category of graphic or plastic art, but there will be difficult borderline cases. We took the decision to use the definition in the directive so that there could be no accusations of gold-plating. It is not a very precise definition, but there cannot therefore be any queries about that. I am well aware of the recent criticism in the press, but many of the reports have been factually inaccurate and not based on the latest economic analysis, which we made available on the Patent Office website.

Finally, I shall deal with another big question, which is why the Government have chosen to make the art market professional jointly liable for payment of resale right. If you take any look at the matter, that has to be the simplest means of operating resale rights. The art professionals are the people who have the experience in this, who can most easily deduct the sum of money, and would be expected to give advice on the issue to buyers and sellers. I cannot see any way that a counter-argument that someone else should do so could be made. If we did that, it would lead to a great deal more grief for everyone, including the art professionals.

The Government firmly believe that our implementation will allow those artists who are most in need of financial support to gain from their creativity while minimising any risk of harm to the UK's thriving art market. We have not gold-plated this directive and we have not gone beyond what is required within the directive. In fact, in setting the threshold at €1,000, we have not gone as far as the directive allows. In making our decisions, we have carefully excluded those cases where the rewards do not justify the costs. Paragraph 55 of the Culture, Media and Sport Committee report, The Market for Art, states,

"we do believe it should not benefit solely the richest artists. We recommend that the Government lowers the threshold at which the resale right applies from 3,000 to 1,000 euros".

Photo of Lord Marlesford Lord Marlesford Conservative

My Lords, can the noble Lord enlighten me before he leaves that point? The decision to go for €1,000 rather than €3,000 will produce some extra revenue for the artists concerned. What is the Government's estimate of the annual revenue per artist who will fall into that category—the additional money that they will receive from that reduction?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, I do not think that we have a total figure, but it obviously depends on what the spread of the figures is. Everyone can do their own calculation on this. There is a tariff and you can apply that to any figure within it. That will give you the result, minus the amount that DACS will take away, which will usually be equivalent to a quarter—but I will check that point and let the noble Lord know. It is not a difficult calculation and if he would like some help with that, we shall provide him with some examples of the figures and the amounts that DACS might withdraw.

In closing this debate, I would like to reassure the noble Earl, Lord Howe, that the Government are committed to monitoring the impact of these measures, and we will revisit any issues which threaten our art market. If it is found that the measures do not work, we can go back to a figure of €3,000—it can be moved up as well as down. As it is unlikely that resale will be made compulsory under Berne, we will press for the derogation for deceased artists to be made permanent. Frankly, we should be focusing on that issue, the real threat to the British art market, if one is looking after the interests of that market, and not be concerned about £22,000 of extra costs.

I thank noble Lords for an interesting debate and I commend the regulations to the House.

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative

My Lords, I thank everyone who has spoken in this good debate. I shall do my best to conclude by 10 o'clock. Three departments look after the art market—the DTI, the Treasury and the Department for Culture, Media and Sport, to whose Select Committee inquiry the Minister gave his famous original answer. This is a culture matter and I express mild regret at the irony that the one department that is not represented on the Government Front Bench is the culture department.

The issue raised in the Merits of Statutory Instruments Committee of your Lordships' House was that this regulation introduces an important matter in legal terms, as my noble friend Lord Inglewood said. I regret that it did not merit that same view from the DTI. There is symmetry in relation to the three departments. The Minister had only three supporters during the debate—three times more than he received in the press or on the media, when his only supporter was DACS, although I acknowledge that its chairman and chief executive wrote to the press. They might, however, be regarded as interested parties.

I wish to respond to the three speeches made in support of the Minister. The noble Lord, Lord Dubs, said that the thresholds have been set at much lower levels by other countries, but he did not specify them. I have an uneasy suspicion that he was relying on Christopher Bryant's remarks in Westminster Hall on 8 November, which was quite some time ago. The German figure that Mr Bryant quoted was €50 at that stage; he said that the level was set at such-and-such a figure. As my noble friend Lord Astor said, the Germans have now moved their figure from Mr Bryant's notional €50 to at least €1,500 and are thought to be going higher still. That is the most vivid index of all that the Germans have learnt from experience that, at low levels, the right is very expensive to manage and administer. It is interesting that they should suddenly have gone up by an enormous margin because the directive allows them to do so.

I sincerely congratulate the noble Lord, Lord Freyberg, on having changed his mind. It is too late tonight to conduct a seminar on how the secondary market works, although I would be happy to have a conversation with him outside the Chamber. I genuinely respect him for having changed his mind and for explaining why he did so.

The spokesman for the Liberal Democrats, the noble Lord, Lord Clement-Jones, despite all he said about all the research that had been done, based his argument on the claim that 50 per cent of—I took him to mean British—living artists would benefit from the Government's decision. I do not think that even the Minister would make a claim above 1 per cent. I just cannot conceive of the quality of the research on which one could base the claim that 50 per cent of living artists would benefit. However, the noble Lord was the Government's third supporter. If the Minister feels that he has been well served by that support, I admire him profoundly.

I agree with the Minister that the issue of relocation does not occur at the lower level; I agree that it does not apply to the threshold issue. I also agree with him that the derogation is of exceptional importance. However, I reiterate what I said in my opening speech: the fact that the Government could give up concessions that they had won so hard over the five years of negotiations does not inspire me—and I suspect may not inspire the art market—with any sense of constancy of purpose in terms of the next campaign. I agree that the derogation is very important and I am delighted to hear the Minister say that he thinks so, but it is just unfortunate that the actions that he has taken have, in fact, belied the words that he has uttered. If you weaken the top end of the market, as will happen if the derogation is not extended, unquestionably the bottom or lower end of the market will become weakened, too, as of course it is the profitability at the top end that enables so many other things to happen at a lower level.

The Minister says that what the Government have done is not gold-plating. I do not know what gold-plating is if it is not what they have done; I do not know what the Chancellor of the Exchequer is saying when he says that gold-plating is no longer occurring. The principle of gold-plating is that you go further than the directive requires you to do, which is precisely what the Government have done on this occasion—that is, frankly, the gravamen of the charge that we have laid in front of them.

I will not go on because, as I say, the hour is late. I told the private secretary to the noble Baroness the Leader of the House that my amendment would not be fatal. However, I hope that the Minister will take stock of how far he has been outnumbered and, it might be said, outgunned in this debate, which, instead of lasting 45 minutes as the Government thought, has actually lasted for nearly two hours. I hope that he will consider very seriously before he takes the matter forward in the way that he currently intends. As I said, my amendment was not intended to be fatal, so I beg leave to withdraw it.

Amendment, by leave, withdrawn.

On Question, Motion agreed to.

House adjourned at ten o'clock.