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The decision announced last week, although widely expected, comes as a serious blow to the art and antiques trade.

They had hoped that a last-minute EU-commissioned study of the impact of the VAT increase on the UK market, researched by MTI, would lead to a change of heart. The fact that it didn’t – especially as the consensus in Britain is that the study’s findings would show the doubling of VAT to have a seriously adverse effect on the market – has led to accusations that the Commission has “cherry picked” the report’s findings to justify its decision.

The central paradox of the decision has been highlighted by Neil Smith, Secretary General of the British Art Market Federation, which has been leading the campaign to stop the measure.

“The Commission have argued that the derogation, whereby the UK was allowed to keep its VAT levels at 2.5 per cent for an extra five years, must come to an end to avoid distortion across the European market. Yet, at the same time, they argue that their findings show that its withdrawal will have no adverse effect on the UK market. If that is the case, where is the distortion?”

BAMF chairman Anthony Browne said that the decision was “contrary to the views of our own independent experts’ report and the opinions of our own experienced art market professionals”. He is angry that the Commission appears to have ignored figures that compare the expansion of the UK and European art markets unfavourably with that of the United States. The Commission pointed out that Europe, with the UK representing 61 per cent of its art market, had seen a 21 per cent rise in sales between 1993 and 1997. As this showed an expansion, the derogation could no longer be justified, they argued.

But they appear to have glossed over the fact that in the same period the US market expanded by 44 per cent.
“The Commission asserts that a VAT rise will have no significant adverse effect, and yet they fail to explain why we have not kept pace with the Americans,” said Mr Browne. The introduction of VAT at 2.5 per cent in 1994 is thought to have contributed very significantly to this divergence in growth. The value of art imports to the UK fell by £400m to £600m in the following year.

Mr Browne and his colleagues believe that at least some of the expansion in the UK market is explained by the trade purchasing ahead of the VAT doubling.

Mr Smith estimated that about 30 per cent of the annual transactions of 100 leading British art and antiques dealers were with non-EU buyers and sellers, all of which would be affected.

Now the fear is that they will simply take their business to where there is no VAT for such transactions at all – to the United States and Switzerland, both nations outside the European Union.

It is this aspect of the ruling – that the UK’s loss will not even be the gain of other EU members – that most frustrates BAMF.

“It’s not that we object to a level playing field with other nations,” says Mr Smith, “but let’s have it at 2.5 per cent for everyone.”

Leading art dealer Richard Green says that he will stay in New Bond Street, but a straw poll last year indicated that nine out of ten of his fellow Mayfair dealers might up sticks and move to America.

Further rubber-stamping of the measures, first by EU ambassadors and then by finance ministers should take until May 25, 1999.