Artist’s Resale Right Regulations

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””. The noble Lord said: 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, maintains 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 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.)