Severe damage will be caused to Britain's growing £600 million market in modern and contemporary art, a quarter of the world's total, when a levy imposed by the European Union comes into force next year, according to a survey.
The report by an independent team of American-based researchers details for the first time the effects of droit de suite, an artists resale rights levy which takes effect next Jan 1, despite opposition from the Government and the art trade.
The researchers, commissioned by The European Fine Art Foundation, which runs the world's most important art fair in Maastricht, Holland, say that modern and contemporary art worth almost £200 million was auctioned in Britain in 2003 with dealers probably selling works totalling another £400 million.
"Although the United States has remained in the premium position by far in terms of its absolute sales, it has lost share of global sales from 60 per cent to 46 per cent from 2000 through 2003," says the report.
By comparison, Britain's share of the world modern and contemporary art auction market rose steadily from 19 per cent to 26 per cent between 2000 and 2002 before dropping slightly to 24 per cent the following year. However a strong performance last year is thought to have reversed that temporary decline.
But the introduction of droit de suite, a sliding scale levy paid by the vendor of a work of art to a living artist or to an artist's family for 70 years after his or her death, looks certain to drive business out of Britain to non-EU countries such as the US and Switzerland. "The more valuable a painting becomes, the more likely it is that the owner will sell in a marketplace that does not charge droit de suite," says the report. It cites the modern art collection assembled by René Gaffé, the Belgian businessman, that sold at Christie's in New York for £50 million in 2001. Fernand Léger's Le Moteur alone fetched £11.4 million.
Auctioneers in France, where droit de suite is already levied, believed they had secured the Gaffé sale but when the United Nations Children's Fund, the beneficiary of the auction, realised that they would have to pay hundreds of thousands of pounds in tax they switched it to New York.
Droit de suite will be levied on the work of living artists resold in Britain next year and, from 2012, on art produced by those who have been dead for up to 70 years. The latter category would even include Chaim Soutine, whose £5 million Le Pâtissier de Cagnes was the highest priced picture in last week's London art sales.
"This is the most significant threat that faces the London art market by far," said Anthony Browne, the chairman of the British Art Market Federation. "Jobs will be lost."
The British Art Market Federation accepts that it cannot stop the introduction of droit de suite but it will campaign to prevent the next phase planned for 2012. "If that goes ahead the effect will be catastrophic," said Mr Browne.
Supporters of droit de suite say it helps hard-up artists who otherwise lose out on the rising value of their work. But the survey shows that more than 80 per cent of the money paid out goes to descendents of artists, many of whom are already wealthy.