Chancellor warns the EU that financial services must be included in a ‘fair and balanced’ deal

Philip Hammond has put Britain on a fresh collision course with Brussels after he warned the government could reject any Brexit trade deal not including financial services.



Speaking in Canary Wharf at the headquarters of HSBC on Wednesday afternoon, the chancellor said a trade deal would only happen if it balanced the interests of both the UK and the EU.



“It’s hard to see any deal that did not include financial services can look like a fair and balanced deal,” he said.



The latest speech from a senior member of Theresa May’s cabinet will move talks with Brussels to yet another impasse, after the EU council president Donald Tusk warned earlier on Wednesday that the UK would not be allowed to “cherry pick” what it liked in trade talks.

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Tusk suggested a Canada-style free trade deal was the only one on the cards, which would be likely not to include comprehensive coverage of services. It also puts him in direct opposition to his French counterpart, Bruno Le Maire, who warned on Tuesday that financial services would not form part of a trade deal.

“We don’t believe that financial services can be part of an FTA [free trade agreement],” Le Maire said in a speech in London.

Hammond’s speech will be seen as a rebuke to the EU’s negotiating position, while he also escalated tensions by warning European countries that any attempts to take finance industry business from London would backfire. Instead, he said it was time to “address the sceptics who say a trade deal including financial services cannot be done because it has never been done before”.

Responding to Tusk’s comments, the chancellor said it wasn’t surprising that the EU had established a “very tough position” against the UK proposal to include financial services in a free trade deal. “That’s what any skilled and competent negotiator would do,” he said.



“This is not a zero-sum game, where any loss of market share in London is automatically a gain to another EU capital … The real beneficiaries are more likely to be New York, Singapore and Hong Kong,” he said.

The chancellor said Britain manages as much as €1.5tn (£1.3tn) of financial assets on behalf of EU clients, while the bulk of financing raised by European companies was handled in the UK. “We should be under no illusion about the significant additional costs if this highly efficient market were to fragment,” he said.

His words will reignite concerns that a no-deal Brexit scenario, where the two sides fail to come to an agreement, could materialise. That would potentially force banks and other finance businesses to relocate from the UK to elsewhere within the EU.

In the meantime, he said Britain expects to reach a formal agreement with Brussels later this month over a transition period of two years – which would take the country’s final exit from the EU from the end of March 2019 to the end of December 2020.

That would allow both parties to continue negotiating a free trade agreement, and give companies more time to plan for Brexit, he said.