Finance (No. 2) Bill

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The Committee consisted of the following Members:

Chairmen: Mr. Joe Benton, Sir John Butterfill, † Mr. Edward O'Hara

† Balls, Ed (Economic Secretary to the Treasury)

Banks, Gordon (Ochil and South Perthshire) (Lab)

† Barlow, Ms Celia (Hove) (Lab)

† Breed, Mr. Colin (South-East Cornwall) (LD)

† Dunne, Mr. Philip (Ludlow) (Con)

† Francois, Mr. Mark (Rayleigh) (Con)

† Gauke, Mr. David (South-West Hertfordshire) (Con)

† Goldsworthy, Julia (Falmouth and Camborne) (LD)

† Goodman, Helen (Bishop Auckland) (Lab)

Goodman, Mr. Paul (Wycombe) (Con)

† Griffith, Nia (Llanelli) (Lab)

† Healey, John (Financial Secretary to the Treasury)

† Hemming, John (Birmingham, Yardley) (LD)

† Heppell, Mr. John (Vice-Chamberlain of Her Majesty's Household)

† Hesford, Stephen (Wirral, West) (Lab)

† Hoban, Mr. Mark (Fareham) (Con)

† Hodgson, Mrs. Sharon (Gateshead, East and Washington, West) (Lab)

† Hosie, Stewart (Dundee, East) (SNP)

† Keeley, Barbara (Worsley) (Lab)

† Khan, Mr. Sadiq (Tooting) (Lab)

† McCarthy, Kerry (Bristol, East) (Lab)

† MacDougall, Mr. John (Glenrothes) (Lab)

† Marris, Rob (Wolverhampton, South-West) (Lab)

† Newmark, Mr. Brooks (Braintree) (Con)

† Primarolo, Dawn (Paymaster General)

† Reed, Mr. Andy (Loughborough) (Lab/Co-op)

Reed, Mr. Jamie (Copeland) (Lab)

† Selous, Andrew (South-West Bedfordshire) (Con)

Tami, Mark (Alyn and Deeside) (Lab)

Thurso, John (Caithness, Sutherland and Easter Ross) (LD)

† Villiers, Mrs. Theresa (Chipping Barnet) (Con)

† Wright, Mr. Iain (Hartlepool) (Lab)

† Wright, Jeremy (Rugby and Kenilworth) (Con)

† Young, Sir George (North-West Hampshire) (Con)

Frank Cranmer, Emily Commander, Committee Clerks

† attended the Committee

Column number: 109

Standing Committee A

Thursday 11 May 2006

(Afternoon)

[Mr. Edward O'Hara in the Chair]

Finance (No. 2) Bill

(Except clauses 13 to 15, 26, 61, 91 and 106, schedule 14, and new clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984)

Clause 18

Value of imported works of art etc: auctioneer’s commission

Amendment proposed: No. 2, in page 20, line 32[Vol 1], at end add

‘but not before 1st September 2006.'.—[Mr. Francois.]

1.45 pm

Question again proposed, That the amendmentbe made.

Mr. Philip Dunne (Ludlow) (Con): The hon. Member for Wolverhampton, South-West (Rob Marris) was saved by the bell at the end of this morning’s sitting, having introduced the subject of sport into the debate. He was trying the patience—I imagine deliberately—of Opposition Members in a rather uncharacteristic attempt to suggest that they had been asleep during the Budget debate. He must have erased from his memory the entire debate in Committee on the Floor of the House in which the Opposition raised matters of great significance.

The Chairman: Order. Is the hon. Gentleman speaking to amendment No. 2?

Mr. Dunne: I am grateful to you, Mr. O’Hara, for bringing me on to the point of my remarks. However, having been unable to speak earlier, I could not resist responding to the point made by the hon. Member for Wolverhampton, South-West.

I support what was said by my hon. Friend the Member for Rayleigh (Mr. Francois) when he moved what is a pragmatic and sensible amendment. As we heard this morning, it is entirely supported by the art market. I want to make a practical observation to the Paymaster General if she is not aware of the way in which the art market works. It is a seasonal market. There are markets, typically in the summer months of June and July, that require a great deal of preparation, not least of which is the publication of extensive catalogues. Due to the complexity of the VAT regime in the art market, the catalogues have to refer to specific VAT rates and regimes that apply to each piece of art that is up for auction.

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Helen Goodman (Bishop Auckland) (Lab): Like the hon. Gentleman, I have a rural constituency and can understand seasonality in agriculture. However, can he explain why the art market is particularly seasonal?

Mr. Dunne: I do not profess to having any specific expert knowledge. I receive rather too many e-mails from art auctioneers for reasons that I cannot really understand, but they make me aware when sales are coming up. They have sales at times of the year when there are many visitors to London—London being the centre of the art market in Europe and a world centre—and they tend to be in June and July, months when other occasions, such as major sporting events, draw people to this country. The other popular seasons tend to be in the pre-Christmas period—in November and December—which again may be partly related to the fact that people enjoy buying Christmas presents at that time of year. There are well established seasons and because of the lead time for drawing up the necessary publications to make the market work properly, the provision cannot be introduced overnight without having significant repercussions on the normal working of the market. For that reason, I support the amendment.

Mr. David Gauke (South-West Hertfordshire) (Con): I merely have a few questions for the Paymaster General about the clause, all of which relate to the amendment. What assessment has the Treasury made of the impact on the art market, as a consequence of the changes in VAT on auctioneer’s commission? What revenue will it gain as a consequence of the changes? Has it taken into account any harm that may be done to the art market in the United Kingdom?

Mr. Sadiq Khan (Tooting) (Lab): Does the hon. Gentleman accept that, rather than the change having an impact on the art market, issues such as rates of exchange may have more of an impact than seasonal variations?

Mr. Gauke: That may well be the case, but as we are debating changes in VAT, I thought that I would raise that matter rather than any other factors.

Julia Goldsworthy (Falmouth and Camborne) (LD): Will the hon. Gentleman accept that the issue is about compliance with a European Court of Justice ruling? The issue is not the negative impact that there may be on the market, but the fact that compliance is necessary.

Mr. Gauke: The hon. Lady is absolutely right. Compliance is necessary, but we should none the less know the costs of that compliance. That is what I am asking about and, indeed, I may return to that subject later in our proceedings should I catch you eye,Mr. O’Hara.

Given that the changes are a consequence of a European Court of Justice judgment, what legal advice have the Government received saying that they were correct in their application of VAT rules? I ask that, because several Conservative Members have referred to legal advice in other contexts. Perhaps Ministers were a

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little dismissive by saying that they had always taken legal advice, but it seems that it is frequently wrong or at least a different interpretation is taken by the European Court of Justice. Will the Paymaster General explore that matter further?

Sir George Young (North-West Hampshire) (Con): I welcome the speech made by my hon. Friend the Member for Rayleigh when he moved the amendment. I am sure that it will make him even more welcome in Sotheby’s and Christie’s on his regular visits to those two great auction houses.

I want to pursue two points. I have no difficulty with the United Kingdom responding to the judgment of the European Court of Justice. Of course, we must do that. Will the Paymaster General say whether the speed at which we respond to such a judgment and this one, in particular, is comparable to the speed with which other countries respond when they are found tohave acted unlawfully? The date of the judgment was 25 February last year and we are putting the matter right under the Finance Bill. Can the right hon. Lady assure me that other Governments respond with similar alacrity when they are found to be acting outwith the remit of the European Court of Justice?

The Chairman: Order. It is not within the terms of reference of the debate to ask the Paymaster General to speak for other Governments.

Sir George Young: I understand that, but the amendment would delay the date on which we respond to the judgment. If we delayed, would that mean that we were more in line with the speed at which other countries respond to the European Court? Will it bring us ahead? I see that the right hon. Lady has the answer at her fingertips.

If we respond as proposed, will we be on a level playing field with other auction houses in Europe? In other words, have they also responded to any judgments against them? Will there be a level playing field in the auction house market within Europe when the clause is enacted?

The Paymaster General (Dawn Primarolo): I think that I can help the Committee. The matter needs to be put into context. It has not arisen simply because of an ECJ ruling, although that is part of the chain of events that led to the amendment. In 1973, when VAT was introduced in the United Kingdom, the Government at the time went for the option of not charging VAT on the importation of certain works of art, antiques and collectors’ pieces. However, when accepting the dossier, the then Government in negotiations on the seventh VAT directive, which was concerned mainly with the harmonisation of VAT treatment, agreed that, for a short time, the rate of VAT on works of art should be 2.5 per cent., rising automatically to 5 per cent. That is the position that we are in, and it was negotiated by the previous Conservative Government. Unfortunately, they failed to raise the issue of VAT treatment of auctioneer’s commission, the very subject that we are debating, when seeking a derogation. They missedthat out.

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When this Government was elected, we automatically inherited the international agreement established by the previous Government, including their failure to apply for a derogation in that specific area. This Government agreed with the art market that auctioneer’s commission should be subject to the same rate. Unfortunately, the Commission did not.

A very long set of negotiations and disagreements then ensued between the Government and the Commission. A series of changes were also made in Finance Bills to try to ease the art market’s position, particularly in recognition of London’s importance on the international scene. We were taken to court, and we lost. We have an ECJ ruling against us now. The reason that we are here in the first place is a failure to apply for—a failure even to think to apply for—a derogation.

The British Art Market Federation does not support the amendment. It recognises the difficult position that it and the Government are in. The BAMF has suggested in its discussions and negotiations—bearing in mind all the points made by the hon. Member for Ludlow (Mr. Dunne)—that 1 September would be a sensible starting date for the arrangement. [Hon. Members: “That is what the amendment says.”] No, the amendment does not say that.

A difficulty then arises, as the hon. Gentleman pointed out, with regard to how speedily the UK will be required to comply with the requirement that we have been disputing—we have lost the dispute at each point—since 1997. Technically, the starting date should be on Royal Assent, but having negotiated with the industry, we have made it 1 September. That is what the industry has asked for.

The amendment is not acceptable because it opens up a possibility that the Commission might interpret it unfavourably. It says,

“not before 1st September 2006”,

which implies that it could be later. Because it could happen on Royal Assent, the BAMF does not support the amendment, and did not ask for it to be tabled. The BAMF has an agreement with the Government, and that is the most sensible way to proceed after long and protracted negotiations. I pay tribute to art market representatives, particularly Anthony Browne, whom I have met. I am familiar with the brief because it has been on my desk since 1997.

2 pm

Mr. Brooks Newmark (Braintree) (Con): I am curious as to why the same Anthony Browne said:

“If this comes into force it will make the tax situation, which is already complex, even more complicated. Something that this country is good at is being thrown away by half-baked ideas in Europe.”

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Prepared 12 May 2006