The UK government will refuse to sign a trade deal with the European Union unless it includes financial services, chancellor Philip Hammond has warned.
“Financial services are very important to us. Financial services have to be part of the deal,” the chancellor said during a panel debate at the annual meeting of the World Economic Forum in Davos.
“The only deal that can ever get done is one that is fair to both parties. And a deal that included goods, but didn’t include services could never be fair, could never be attractive to the UK,” he said.
“Those who casually suggest financial services won’t be part of a deal are not looking at the numbers,” Mr Hammond added, pointing out that the UK runs a £100bn trade in goods deficit with the EU.
The chancellor added that it was “not London or Frankfurt”, but London, New York or Singapore. “The winner will be New York or Singapore if London is damaged by this process. The loser won’t just be London it will be Europe.”
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“The idea that you can recreate in Frankfurt, or Paris, or Madrid London’s financial centre is a fantasy - it isn’t going to happen.”
Michel Barnier, the European Union’s chief negotiator, has argued, repeatedly, that financial services would not be part of any final trade deal with the UK. “There is no free-trade agreement between the EU and a third country that would have allowed privileged access on financial services.”
Speaking at a lunch for UK business leaders later, Mr Hammond urged the audience to stop debating the decision to leave the EU and focus their energy on the future. “Britain will be leaving the EU on the 29th of March 2019,” he said. “This decision is not going to be reversed. That is a matter of political reality.”
The chancellor said he could see no alternative for the UK other than being part of a customs union with the EU after Brexit. He “welcomed” a speech by Carolyn Fairbairn, the CBI’s director general, earlier this week on the logic of a customs union.
“Sixty per cent of all UK trade with the EU is conducted through the ports of Calais and Dover which underlines the importance of a customs arrangement with the EU that protects free and frictionless trade and avoids significant disruption at the choke point of the ports of Calais and Dover.
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“And one that avoids any visible border infrastructure in the island of Ireland. Because I agree with Carolyn that those who have suggested that the Irish border can be kept open by establishing a customs border down the Irish Sea are only shifting the issue rather than solving it.”
Speaking shortly afterwards, Theresa May said she wanted a deal that allowed “bilateral trade deals”, which implied that any customs arrangement would have to be unique and bespoke to the UK.
Jacob Rees-Mogg MP was reported to have said: “Whether it is ‘a’ or ‘the’ Customs Union it is a protectionist racket that damages the interests of the wider economy.”
Mr Hammond confirmed that the trade deal he envisaged would go beyond anything already struck by the EU. “An off-the-shelf deal, whether Canada or Norway, is not the right answer for either Britain or the EU.”
“The existing models won’t work. Because we’re trying to do something that is literally unique. We are taking two interconnected economies with high levels of trade and moving them, hopefully, very modestly apart.
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“We should be confident of reaching something much more ambitious than anything that has ever been agreed.”
“We have made significant progress. We are now moving forward with the discussion around the transparency period. That gives business clarity over the next three years or so,”
Mr Hammond said Britain “shouldn’t start with a process which throws away the regulatory alignment between our economies as a starting point”.
