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Among other considerations, they will be looking for solutions that cause least distortion to the art market, an indication that they are unlikely to introduce controversial measures used in other European countries, such as pre-emption and notification, where prices can be deflated by a ban on works of art being exported even before they come up for sale.

Chief Secretary to the Treasury Paul Boateng announced the consultation paper, Saving Art for the Nation, early last week. It will examine the existing taxation and funding arrangements that affect the ability of museums and galleries to acquire and display works of art and culture. The findings of the consultation will contribute to the review. Responses to the consultation must be submitted by October 1.

The Budget announcement of the review in April came only two weeks after The National Art Collections Fund launched a three-pronged campaign on the issue as part of their centenary celebrations. Central to their concerns was that art owners do not have enough incentive to bequeath works to the nation and that tax relief on such donations – until now only available on donations of cash or shares – should be extended to cover art as well.

The Art Fund’s call came as an anonymous donor stepped in at the eleventh hour to offer £10m plus to help the National Gallery secure Joshua Reynolds’ portrait of Omai, regarded by some as the finest British portrait painted. Last week, officials were still waiting to hear whether the new owner would accept the payment and hand over the picture.

The Art Fund are still working on the other two prongs of their campaign to help the nation retain important works:

• To establish a system that would identify the most significant items at risk at the earliest opportunity, thereby reducing the eleventh-hour rescue campaigns that are becoming all too familiar; and

• To restore the annual government funding of the National Heritage Memorial Fund – the fund of last resort – to its pre-Lottery level of £12m, to give the system backbone and justify its existence.

The latter issue is expected to form part of the review, which will be led by Sir Nicholas Goodison, who has just stepped down after 16 years as chairman of the Art Fund.

Mr Boateng, who said the Government recognised the importance of ensuring key works stayed in the country, said that the review “aims to ensure that the support on offer is practical, well-targeted and value for money”.

Together with Arts Minister Estelle Morris and Sir Nicholas, Mr Boateng has already met with the advisory group who will brief them during the course of the review as part of a wider consultation exercise. The advisory group includes expertise from the galleries and museums world, academia, collectors and the art trade, notably Anthony Browne, chairman of the British Art Market Federation.

The review will assess the impact and effectiveness of current support, taking into account tax measures relating to cultural property, public spending contributing to museum acquisitions, Lottery funding and non-governmental sources of funding.

It will consider taxation arrangements that affect the whole of the United Kingdom, but funding arrangements under consideration relate to England and Wales only.