The City will today become the latest battle ground in the Brexit negotiations, as the chancellor demands financial services are included in any future trade deal.
Philip Hammond will today make a major speech in central London, dismissing the argument that the City cannot feature in a trade deal with the EU. In a clear swipe at EU chief negotiator Michel Barnier, who has said the UK cannot expect a bespoke deal, Hammond will say “every trade deal that the EU has ever done has been unique”.
Hammond will follow the FCA's boss Andrew Bailey in pointing to the US-EU TTIP deal, where the EU "pursued ambitious financial services co-operation... as a partnership that would be 'more than a traditional free trade agreement'."
He will also note that the EU's initial proposals for its deal with Canada took a similar approach on financial services, despite the fact that both the US and Canada have "entirely separate markets with different rules" from the UK.
"At the time, people rightly argued that this was a challenging objective but it need not be so in a partnership between the UK and the EU. Our markets are already deeply interconnected," Hammond will say.
His intervention comes just a day after French finance minister Bruno le Maire sought to rule out the sector's inclusion in a post-Brexit deal.
“Financial services cannot be in a free trade agreement," he told the BBC. "We have to rely on equivalence regimes, that is the best solution for financial services." The Frenchman added that City firms should consider relocating to Paris.
And on Monday night Stefaan De Rynck, senior adviser to the EU’s chief Brexit negotiator Michel Barnier, argued mutual recognition - the model put forward by Theresa May last week and one favoured by City bodies - was not a viable option.
De Rynck said: “The EU has moved away in the wake of the financial crisis from mutual recognition of national standards to a centralised approach with a single EU rule book and common enforcement structures and single supervisory structures.”
But Hammond will urge the likes of le Maire and de Rynck to consider "the reality of today" - stressing that our regulatory frameworks are "identical" with Europe's economies already interconnected.
Hammond will say: "We have demonstrated how we can work together over the past decade as we have repaired and defended the financial stability of our continent. If it could be done with Canada or the USA, it could be done with the UK – the EU’s closest financial services partner by far."
"I am clear not only that it is possible to include financial services within a trade deal but that it is very much in our mutual interest to do so.”
Hammond's position was welcomed by financial sector lobby group UK Finance. "The chancellor is right that we can use our uniquely close relationship with the EU to build an ambitious trade deal that promotes jobs and prosperity across the continent," said its chief executive Stephen Jones.