According to the 2019 Art Basel/UBS report, 2018 was the second highest-grossing year for the art market in the past decade, netting $67.4 billion in sales and a 6% growth.[i] Despite the upward trajectory, upon closer examination this growth is uneven, as 57% of dealers saw their sales decline. These variations can be attributed to several forces, including the US-China trade war, slowing global growth, a sense of political uncertainty, and Brexit. For the past 3 years, since the infamous June 2016 referendum, Brexit has loomed over the UK and EU. Amidst political and social turmoil, Boris Johnson was recently elected as Prime Minister and it appears that the October 31, 2019 deadline will pass without a firm deal in place.[ii] What does this mean for the UK art market?
Auction houses, galleries, museums, and collectors all share the same apprehension stemming from Brexit: that the UK will lose its status as a premier art market in Europe, and the third in the world. Both long and short-term impacts have been considered by analysts since the referendum results were announced. Currently, the UK is behind the US and ahead of China, accounting for 21% of the global art market; however, this represents a 10% decline (as of 2018) attributed to Brexit-related fears.[iii] Previously in 2017, 58% of surveyed dealers expected sales to rise the following year, while in 2018, the number fell to 30%. Smaller and more outdated galleries are especially vulnerable to economic swings, as “the market is fundamentally changing and the macro environment that people are working in is unpredictable.”[iv]
Three years ago, there was concern over the impact of Brexit but also hope that a solid deal would adequately address concerns over the free movement of goods as well as the status of EU nationals in the UK. Comparatively low EU funding for the UK cultural sector, discontent over legislation perceived as unnecessary, belief in the power of London as a global art hub, and continued adherence to a European rather than UK sense of identity were factors cited by art market professionals in favor of Brexit prior to the vote. They were all confident that the nation could weather the storm, little would change overnight, and commerce would continue to flow.[v] Two years was seen as more than enough time to get things in order, and until then, it would be “business as usual.”[vi]
Now, uncertainty, unease, and precarity have affected all sectors of the global art market, and the UK is no exception. The art market is braced for a shock, as the pound’s decline in value might lure foreign buyers, but speculation over duties and import taxes simultaneously acts as a deterrent.[vii] Nervous consignors may even withdraw lots in the months leading up to Brexit, or, alternatively, rush to sell. Some exhibitions have closed early to avoid future tax bills once the UK is no longer part of the EU free trade zone; in such instance, levies on artworks can amount to millions of dollars.[viii] Additionally, the UK’s new Prime Minister has a thorny history with the art market, and his track record causes further anxiety. For instance, Anish Kapoor’s London sculpture ArcelorMittal Orbit, commissioned for the 2012 Olympic Games under the auspices of Johnson (who was the Mayor of London at the time), is now $15.8 million in debt and nicknamed “Boris’ folly.”[ix] Johnson also pledged to cut budgets for art projects during his mayoral campaign, which critics cite as evidence that the PM will adhere to austerity policies for the arts post-Brexit.[x] Artists are especially concerned that Johnson does not perceive the social value of cultural capital, despite his tenure as shadow culture minister in 2004.[xi] Notably, Johnson plans to establish freeports and tax-free zones, despite their ties to money laundering and the UK’s commitment to adopt the Fifth EU Money Laundering Directive in early 2020.[xii] The Directive is applicable to art galleries and auction houses, and mandates heightened scrutiny for transactions related to cultural objects. Nonetheless, regulatory change – either within or peripherally to the art market – seems imminent.
Current proponents for Brexit within the UK art market continue to view its relationship with the EU as myopic and strangled by overly strict regulations and bureaucratic red tape. Munira Mirza, London’s deputy mayor for culture from 2008-2016, believes that Brexit will provide the UK with an opportunity to broaden its trade networks with countries outside the EU, notably Asia and the US.[xiii] She also states that while the UK may lose EU funding for cultural programs, it can subsidize arts organizations with the money it will save after ceasing contributions for the latter. Clare McAndrew believes that Brexit represents a golden opportunity for the UK art market to maintain its status within an increasingly competitive global economy through a cost benefit analysis of EU directives and their implications.[xiv] In particular, her view is that the UK should create its own legal regime for the art trade and directly address the matter of import/export regulations as well as artists’ resale rights (ARR). Although the UK has the lowest VAT rate in the EU (5%), it is higher than the US and China, its main rivals. By lowering or eliminating import VAT, the UK could attract a greater number of sales and maintain its position on the global stage. Moreover, the UK’s withdrawal from the EU could provide the necessary impetus for other EU countries – notably France – to occupy the UK’s current role in the art market within the Union.
Interestingly, the UK experienced robust growth in the auction sector, accounting for 88% of global sales (along with the US and China) and with a 15% increase in 2018.[xv] The EU only held 8% of the market – an overall drop of 24% over the past 10 years. This continuing decline can be attributed to its regulatory structure, which makes it a costly and complex transaction venue. The UK, by contrast, follows the Anglo-Saxon model of strong private property rights and low regulation in the area of market competition, which is still highly vulnerable to fiscal and regulatory changes. Examining the numbers, it would appear that auction houses – particularly Sotheby’s and Christie’s – will be the primary beneficiaries of Brexit, given that they are more established and possess both sufficient financial resources and international presence to overcome new customs and trade regulations. These obstacles will likely be more pronounced for smaller dealers and galleries, more so if the owners and employees are EU nationals. In those cases, small companies may close and/or relocate if they are unable to cover the additional import and export costs.
Ultimately, no one can predict how Brexit will affect the UK art market with absolute certainty. There will of course be a period of adjustment and confusion over practicalities (including administration costs and transport delays), but there is also reason to be optimistic. The UK art market’s strong pattern of growth since 2016 demonstrates that it occupies a solid position worldwide despite the political and economic fluctuations triggered by Brexit. At the moment, it is a matter of mitigating potential negative effects and preparing as much as possible for various scenarios.[xvi] Major auction houses have employed specialized task forces to discuss Brexit’s impact, while the UK government issued guidance for imports and exports in the event of no deal. International art dealers are on standby to move works to the EU, and the Frieze art fair in early October should provide an interesting counterpoint to political dialogues. The art market has already proven resilient despite a global recession and political upheavals; if the UK rises to the challenge, it should not be derailed completely by the fallout of a no-deal Brexit.
Claudia S. Quiñones Vilá is a licensed attorney in New York and Puerto Rico with experience in civil international law and an interest in the art market, private collections, cultural heritage, sustainable development, urban law, and public policy. She currently works at Amineddoleh & Associates, a leading NYC legal firm dealing in art and cultural heritage disputes for high-profile clients, including the Cultural Ministry of Greece. In 2018, she completed an internship at UNIDROIT in Rome focusing on cultural property. In 2019, she received honors for her master’s thesis on cultural heritage legislation and policy in the EU as part of the EUPADRA MA/LLM program hosted by LUISS Guido Carli University (Rome), the Universidad Complutense (Madrid), and the University of London. She is also a member of The International Art Market Studies Association (TIAMSA) Legal Group and a contributor to their blog, as well as the International Law Association (ILA) and the Lawyers’ Committee for Cultural Heritage Preservation (LCCHP).
[xii] https://news.artnet.com/art-world/boris-johnson-uk-arts-1607332; https://www.shlegal.com/insights/the-fifth-eu-money-laundering-directive-and-the-art-market