Philip Hammond will appeal for the EU to include financial services in a free trade deal with the UK, arguing that the economies on either side of the Channel are too difficult to disentangle.
Citizens across the EU “depend on cross-border financial services trade in their day-to-day lives”, the Chancellor will say.
However, his appeal was undermined yesterday by Emmanuel Macron’s economy minister, who warned that the EU would never accept a free trade deal covering financial services and urged major employers to relocate to Paris.
In a speech today, Mr Hammond is expected to say: “A trade deal between the UK and the EU must start from the reality of today - that our economies, including in Financial Services, are interconnected, that our regulatory frameworks are identical.
“Our businesses and citizens depend on cross-border financial services trade in their day-to-day lives when they buy a car, or take out a fixed rate loan, or hedge their fuel costs.”
The Chancellor will insist that a free trade deal between the UK and EU can break new ground because “every trade deal that the EU has ever done has been unique”.
Brexit trade negotiators can borrow from the defunct US-EU agreement and its deal with Canada, Mr Hammond will say, claiming: “We can do so much better.”
But the UK was warned that it cannot expect its financial services sector to have the same access to the European market after Brexit, with the French economy minister Bruno Le Maire saying the “best solution” would be an arrangement where both sides recognise each other’s regulations and standards.
Such an arrangement would be much less stable, with either side able to revoke recognition at just 30 days’ notice.
“Financial services cannot be in a free-trade agreement, for many reasons - for reasons of stability, for the sake of supervision because there are some very specific rules for financial services.” Mr Le Maire said. “So financial services cannot be in a free-trade agreement, but we have an alternative system which is called the equivalence regime.”
A senior adviser to EU Brexit negotiator Michel Barnier gave an even more pessimistic assessment to audience at the London School of Economics on Monday night, warning that since the global crash of 2008, the EU had increasingly moved away from a system of “mutual recognition”.
Stefaan De Rynck said if there was a “market failure” it meant the EU authorities could step in to intervene - which would no longer apply to the UK if it was outside the EU.