Dawn
Primarolo: It is not surprising that Mr. Browne is against
the changes. The Government and the art market have fought hard over
the issue. It is a shame that the Conservative Government did not work
as closely with the art market, a market that they now profess to
support on the derogation.
I have said why it needs to be
done within that period, and I have dealt with the matter of legal
advice—and our advice is the same as the art market’s. I
turn next to what the cost is likely to be to the art
market. The only figures that I can provide are those provided by the
British Art Market Federation, but we have absolutely no reason to
dispute them. Mr.
Mark Francois (Rayleigh) (Con): As a matter of fact, the
British Art Market Federation was aware that we had tabled the
amendment. I discussed it with the federation in some detail.
Is the Paymaster General saying
that the likely implementation date is now the date of Royal Assent, or
will it be 1 September? She mentioned both, and it would help the
Committee if she were to say which of the two is the most
likely.
Dawn
Primarolo: The Government have negotiated with the trade
for a starting date of 1 September. That is what we intend. I know that
the hon. Gentleman has discussed the amendment with the art market, but
I dispute whether the federation supports it. It knows the delicate
position that we are in; we, too, have had the opportunity to discuss
the matter with them.
I return to the matter of
costs. The increase is not on the works of art but on the
auctioneer’s commission. The federation estimates that the total
implementation costs for UK auctioneers will not exceed
£500,000. That is a reasonably large amount of money, but it is
not substantial when compared with turnover and profits. The
federation’s estimate of the total implementation costs for
smaller businesses in the trade sector is about £50,000. As for
income to the Government, it will be negligible—so small that no
Government would calculate it. Additional support and help to the art
market has been put in place under previous Finance Acts—the
market already has that help—to try to counter some of the
problems.
Mr.
Dunne: In direct relation to the helpful statistics that
the Paymaster General is giving us, has she or the art market
calculated the much more significant impact that the measure may have
on business forgone—the art business lost to the London
market?
Dawn
Primarolo: It is clearly difficult to establish. We rely
on the market for that information. It is a strong and important
market; it is the central market in the European Union, and second only
in the world—perhaps not even second. We are advised that the
impact will be minimal. That was the Commission’s case; it said
that it wanted to ensure a level playing field. The impact was minimal,
and we were asked why we were moving heaven and earth to prevent
something that would have a minimal effect. None the less, the
Government did so.
Mr.
Gauke: The Paymaster General said that it was the
Commission’s case that it would have a minimal effect. Was that
case accepted by the Government during the hearing before the ECJ, or
did the Government argue that it would not have a minimal
impact?
Dawn
Primarolo: The Government and the art market made a wider
case than simply the likely cost.
As I said, the Commission’s view was that the impact would be
minimal, but that is also the view of the art market. I am not familiar
with the issue although over the years I have had the benefit of
meeting people such as Anthony Browne. As hon. Gentleman can guess,
currency exchange rates and other factors will have a far greater
impact on the market than will this tiny change by the
Commission. The
Government and the art market argued for the need to maintain global
competitiveness—the London market vis-Ã -vis the world
market. The Government have moved on that, and I can send the hon.
Gentleman details of those changes designed to counterbalance the
question of competition, but it would not be appropriate to stray on to
that matter
now.
Mr.
Gauke: Was it therefore the Government’s case that
the measure would have a major impact on the competitiveness of the
London art market? To what extent does the Paymaster General still
believe that that will be the
case?
Dawn
Primarolo: The Government supported the art market by
recognising that it had been an omission not to apply for a derogation
at the appropriate time and that there was therefore an obligation to
assist in whatever way possible. Given the size of the market, the
small change that the measure makes will not have a significant
financial impact. However, we were keen to be seen to defend what is a
premier market based in London—we believe that the citizens of
this country would expect us to do that—and that is precisely
what we did. On that
basis, I hope that the hon. Member for Rayleigh will not press his
amendment, but if he does, I shall ask my hon. Friends to oppose
it.
The
Chairman: Before I put the question on the amendment, I
should like to say that again it has been difficult to talk to the
amendment without talking also to the substance of the clause. I intend
therefore to move clause stand part formally without further debate, so
if hon. Members wish to make any further points they should make them
now.
Mr.
Dunne: I should like to comment on the clause. There
appears to be an agreement on both sides of the House about the fact
that this is a regrettable step forced upon the Government by the
European Court. Despite the agreement that we should not be
implementing the measure, the Paymaster General has ingeniously
succeeded in blaming the previous Conservative Government and rubbished
my hon. Friend’s amendment, even though she made it clear that
she agrees with its substance. As has happened previously, we appear to
have lost the battle but won the war.
The measure in the clause is
seemingly innocuous. We have heard that the impact on the art market is
likely to be minimal, but I fear that it could be more significant. As
I said, I am not an expert, but I have done a little research and as I
understand it some£3 billion to £4
billion-worth of transactions are made in the London art market every
year. Most of that goes
through Sotheby’s, Christie’s and Bonhams. It is a very
mobile market. We are talking about works of art imported into this
country to be put through those auction houses. Typically, the
consignments of those works of art come from the United States or
non-European vendors. They have the opportunity to keep the artworks in
the United States and sell them in New York or send them to
Switzerland. I suspect that the drip-drip nature of the obstacles to
vendors selling their works in London is likely to encourage other
markets, such as the one in
Geneva. Just to give
hon. Members some idea of the scale of the consignment from overseas
that would be affected by the measure, I understand that in January, at
the impressionist art sale—which happens twice a year,
seasonally, although I cannot tell what the other month is: it may be
July—88 per cent. of the lots sold at Christie’s and 72
per cent. of the lots sold at Sotheby’s were bought by
Europeans, who will now be caught by this increased rate of VAT. The
vast bulk of the buying side of a market—there are always two
sides to a market: the seller and the buyer—is based in Europe
and will be subject to VAT. A large proportion of the sellers can
choose whether they wish to use this market or one that is not caught
by the increased charge. That is potentially significant. I do not know
whether the Paymaster General had representations from the VAT
specialists at Grant Thornton, but Paddy Behan was quoted as saying
that he believes that
this “will have a major
impact on the standing of UK auction
houses.” We have heard
some relatively complacent remarks from the Paymaster General. I hope
that she is right and the measure has a minor impact, but I am fearful
that it may not. That is yet another example of the European Commission
seeking to introduce creeping tax harmonisation through this
measure—something that is regretted on both sides of the
House—which we should resist at every level. I appreciate what
the Paymaster General said—[Interruption.] If the hon.
Member for Wirral, West (Stephen Hesford) wishes to intervene, I should
be happy to let him. No; he is just making sedentary sniping
remarks.
Mr.
Francois: We have had a useful opportunity to air this
subject. I thank the hon. Member for Wolverhampton, South-West (Rob
Marris) for complimenting me on being so quick off the mark in getting
my amendments tabled. It is always nice to receive a compliment from
him; I shall bank it for the future. I am also grateful to the
Paymaster General for her reply. At times, her tone was a little
unnecessary, but I listened carefully to what she
said. I have heard
your guidance, Mr. O’Hara, about this debate effectively
becoming a clause stand part debate. I have one further point to make
in that context before returning to the amendment. This may appear to
some to be a relatively minor measure, but it has to be considered in
the context of a number of pressures on the United Kingdom art market
in recent years, not least the droit de suite issue, which I do not
propose to expand on at length this afternoon. Nevertheless, that has
been a major challenge to the art market—or will be in the next
few years. It is also, beyond peradventure, an issue on which the
market has
absolutely not been at one with the Government—in fact, precisely
the opposite. The Government have enraged the art market by the way in
which they dealt with that measure and by going beyond what was
required to make the problem worse. If the Paymaster General is
attempting to intimate that there is a cosy relationship across the
board with the market, that is not quite correct—although I
concede, for the avoidance of doubt, that on this issue the Government
attempted to take a robust
view. I should like to
quote again from Mr. Anthony Browne’s letter about the wider
issue: “We
consider that the ECJ judgment, unhelpful as it is, is not the fault of
the British Government. It is, none the less, a further example of the
way in which the international competitiveness of the British art
market, by far the largest in the EU and Europe’s only global
art market, is being eroded by EU
legislation.” There is an
important distinction to make. I reiterate the BAMF’s point that
it is grateful for the dialogue with Her Majesty’s Revenue and
Customs and its officials. I hope that we have used this opportunity to
air the matter
responsibly. Returning
to the amendment, I heard the Paymaster General give two commitments in
her remarks. First, I am grateful that she reiterated that this change
will apply only to auctioneer’s commission, not to the hammer
price of the object. She mentioned that, and I listened carefully. We
asked her to reiterate that to avoid doubt. She has done so, and I
thank
her. 2.15
pm We come to the
date itself. In some ways, it was a rather curious debate. We tabled an
amendment that said that the measures could not come into effect until
1 September. The Minister said, “I don’t want to accept
that, because we’re going to bring in the change on 1
September.” We are almost in danger of being in what the
Americans call “violent agreement.”
The Minister has assured us
that negotiations appear to have progressed successfully and the
measures will not come in until 1 September. The market will have time
to prepare. The change will not come in mid-season and cause the
disruption that we discussed. Therefore, under the circumstances, it
seems that the matter is being reasonably dealt with all around. On
that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn. Clause
18 ordered to stand part of the
Bill.
Clause
19Missing
trader intra-community
fraud
Julia
Goldsworthy: I beg to move amendmentNo. 58, in
page 21, line 6 [Vol 1], leave out from ‘(10)' to end of line
10. This is a probing
amendment relating to an addition to section 55 of the Value Added Tax
Act 1994. Proposed new section 55A(1)(d)
mentions “the total value
of the relevant supply, and of corresponding supplies made to the
recipient in the month in which the relevant supply is
made”
in excess of £1,000, which is
referred to as “the disregarded amount”. The amendment
seeks to remove that last part, following representations from the
Institute of Chartered Accountants in England and Wales and the Law
Society, which raised queries about setting the sum at
£1,000. The
matter is quite simple, and it raises a question of practicality. The
measures will affect only businesses with a turnover of £60,000
to £61,000. Will the Minister clarify the rationale behind
setting the disregarded amount at £1,000? Is that threshold
sufficiently low to avoid costs for business? If it is to be set at
£1,000, should there be a threshold at all, or is there a case
for setting it higher? I would appreciate the Minister’s
comments on the rationale behind the
measure.
Mr.
Francois: I shall confine my remarks to the amendment, as
I am keen not to prejudice the broader stand part debate on this rather
important clause. I
have listened carefully to the argument that the hon. Member for
Falmouth and Camborne (Julia Goldsworthy) made in favour of
her amendment, but I am not convinced by it. The clause will give HMRC
quite a strong power to impose the reverse charge procedure, which
could be a useful weapon in the battle against missing trader
intra-community fraud, but which will represent quite a change in VAT
terms for those companies on which the order might be
imposed. The element
of the clause in question effectively provides a safeguard for small
businesses in particular by instituting a de minimis level below which
the power should not apply. If it were deleted, the procedure could be
imposed even on companies reclaiming a very modest amount of VAT.
Indeed, some professional bodies have claimed that the threshold should
be raised. I am
curious that the hon. Lady quoted from the Law Society. I read its
brief; perhaps I read it slightly differently. It
said: “We
appreciate that repeated transactions involving loss of VAT on supplies
just below an increased threshold, e.g. £10,000 a month, would
give rise to material losses of VAT. However, the aggregation
provisions in the new section 55A(1)(d) enabling other supplies to be
taken into account—e.g., if a customer has already received (on
the current legislative proposals) supplies of £200, the new
provisions will apply to other supplies which individually or in
aggregate exceed £800—might suggest that a higher
threshold could be
adopted.” Unless I
completely misread that, the Law Society is saying that, if anything,
the threshold should be higher, presumably because it would like the
safeguard to be broader than it
is.
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