The European Union wants to introduce droit de suite, which gives artists and their heirs a percentage of the re-sale price of their works.
But dealers and auction houses, through the British Art Market Federation, are campaigning against the imposition, and a change in VAT. The levy operates in most European countries and is broadly welcomed by artists, but London believes it would cost 5,000 jobs and pounds 68m a year if introduced here.
The trade is already bracing itself for an increase in VAT on art works imported from outside the EU. No legislation is yet in place in Britain, but a minimum rate of 5 per cent, double the existing level, is due to come into effect across the whole of Europe next week.
The trade hopes that the meeting of Europe's Internal Market Council in Luxembourg tomorrow, where the Trade minister, Lord Simon, will bat for Britain, could still reach a compromise on the potentially far more damaging issue of droit de suite. The German art market is known to have been lobbying its government to oppose the move too.
London has already witnessed a shift of business to New York, with several dealers opening new offices or transferring work to existing offices in the US to avoid the VAT, which was introduced by Europe in 1993. London has suffered most as it has the biggest art market.
Daniel Katz, a leading dealer, said: "The whole thing is a complete disaster - it makes it even more bureaucratic."
Sotheby's Pierre Valentin said the perception of bureaucracy caused by the original imposition of VAT was as important as the sums involved. "The market is slowly moving to New York," he said, "and the incentive to move completely would be pretty strong if droit de suite is introduced."
A further effect is the impact on British museums and galleries if the London art market is weakened. David Barrie, of the National Art Collections Fund, said it was important to scholarship for curators to be able to view works, even if they were unable to purchase many. If the works no longer passed through London, few would be able to travel abroad to see them.
Timothy Wilson, a curator at the Ashmolean Museum, Oxford, said: "Of the things I've been able to achieve in nine years as keeper of Western art, the greater part has in some way or another been supported by members of the London art trade." As well as supporting publications, catalogues and exhibitions, dealers sometimes help with the costs of refurbishing galleries.
An exhibition of the work of the Carracci, great artists in 16th- and 17th-century Bologna, was underwritten by the London dealers Hazlitt, Gooden & Fox. The same dealers also bought a painting by Ingres of the Ashmolean's architect Charles Robert Cockerell and held it, at no charge, until the museum found enough money to buy it. They also saved Newstead Abbey, near Nottingham, about pounds 35,000 by arranging a recent purchase in a tax-efficient way known as private treaty.
Mr Katz has just met all the costs of mounting an exhibition of Renaissance bronzes from the Ashmolean at his gallery in Jermyn Street. He also paid for the refurbishment of the Ashmolean's gallery of baroque painting last year. Earlier this decade, Sotheby's auctioneers sponsored an exhibition of Poussin drawings. And Agnews has given money to the National Gallery.
"This kind of relationship certainly doesn't exist anywhere else in Europe or in America," Mr Wilson said. "Were the trade to move in any substantial way to Geneva or New York or Zurich, it would be a complete disaster for museums and for art history."
Lindsay Stainton, of Hazlitt, Gooden & Fox, said the firm's support was "completely philanthropic", undertaken because it thought it important. "But you can only afford to do this if the art market remains at least reasonably healthy."
Neil Smith, secretary of the Society of London Art Dealers, said no one was making "phenomenal" profits these days, but vowed that the new levy would not be the end of the London art market. "We would hope that the expertise in London and the knowledge of the market will help to keep London thriving."Reuse content