Artist’s Resale Right Regulations

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]. The noble Lord said: 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.)