The art market: splitting the spoils, Yazzy's at www.williamverdult.com

Art is big business. The UK art market is estimated at £8.5 billion — second only in value to New York. But should the artists who create the works and their families enjoy a slice of the lucrative pickings?

Battle lines have been joined between Britain’s artistic community and a coalition of London auction houses and dealers over a law that would pay resale rights or a royalty on the sale of artists’ works for 70 years after their death.

Living artists across Europe won the right to resale rights or royalties on their works under a European directive in 2006. The Government, which initially opposed the measure, won an opt-out from extending the right to the works of dead artists for 70 years, because of fears that the art market would shift abroad.

That derogation will expire on January 1, 2010. The auction houses and many art dealers want the Government to apply to the European Commission to extend compliance until January 2012 — if not indefinitely. The Government is shortly to publish a consultation paper on the issue but ministers have already indicated that they would like to press for the opt-out to be extended.

A fiercely fought war of words has now erupted. Artists argue that it is wrong that their families and beneficiaries should not benefit from the increased value of their works as do writers and musicians. The royalties would affect the sales of works by scores of leading artists such as Matisse, Picasso or Francis Bacon, whose work has soared in value in recent years. Ceramics, sculptures, tapestries, glassware or photographs are all included but not furniture or jewellery. Nor does the resale right apply to sales between private individuals with no dealer or gallery involved or a sale to a public non-profit-making museum.

The Design and Artists Copyright Society, one operator of the royalty scheme, has collected £4.2 million in royalties since 2006 for nearly 1,500 living artists. Despite early fears, the scheme has not had the adverse impact predicted, it says. Joanna Cave, its chief executive, said: “The art market in 2007 was valued at £8.5 billion, more than double its 2004 value of £4.2 billion. The Government’s own report confirms that the volume and the value of the UK art market has grown as fast, if not faster, than the art market in jurisdictions where the artists’ resale right is not currently payable.”

Some 87 per cent of art market professionals said that the resale right had not damaged their business, the society adds, nor has it proved either costly or burdensome to administer: yearly running costs are £50,000. Cave says that extending the right to dead artists would have only a limited impact because it is limited to 4 per cent of the value of the sale or a maximum of ¤12,500 (£9,870). “When you are talking about a Francis Bacon selling for millions of pounds, this is a drop in the ocean and hardly likely to be a disincentive to a sale taking place in London.”

Why, she says, should artists’ families not be fairly be rewarded for the increased value of their work as writers and musicians do? The society is urging a move now to full implementation — not just for artists’ families but for the many trusts and charities that benefit from the resale of their works.

The British Art Market Federation which represents auction houses and art dealers, strongly disagrees. It maintains that one third of British dealers are planning to transfer their business overseas if the right is extended. Anthony Browne, the chairman, said: “We’d simply be handing a large part of our art market to New York or Switzerland on a plate — because there’d no longer be a level playing field.

“The British art and antiques market is by far the largest in Europe and has a global market share of 27 per cent. Only the United States, with 46 per cent of the market, is larger. However, the UK is under sustained pressure from international competition.”

Higher transaction charges and administrative burdens in the European Union will make the UK a less attractive place to sell art, he said.

So far, he adds, the resale right has had a limited impact because of the art market boom. But when such economic conditions ended, its impact would be felt. The UK’s main overseas competitors — the US, China and Switzerland — had no such resale right. Ending derogation in 2012 would give them a “significant competitive advantage”.

Mark Stephens, head of media with Finers Stephens Innocent, who acts for many artists, said: “The lie given to the auction houses’ line is that the payments to living artists and their families have not significantly shifted the art business from one country to another.” The real impact on art sales was done by VAT and by the buyers’ premiums, he said, which auction houses were able to negotiate to influence a sale. “By comparison, the infinitesimal sums paid in royalties to artists make very little difference.” He added: “Ministers have been wined and dined by the fat cats of the auction houses in London but the truth is, if they put their minds to it, they could see that they have been conned over the cognac.”