Chancellor confronts EU over City Brexit deal

Philip Hammond is to insist that the City can be part of Britain's post-Brexit trade deal – and that this would be in the interests of Europe as well as the UK.

The Government wants free access to the EU for the vast financial services industry to be part of any deal, but Brussels has so far proved resistant.

In a speech on Wednesday, the Chancellor is to address those doubtful about such an arrangement, arguing that not only is it possible, but that it would be "very much in our mutual interest".

Mr Hammond is due to say: "It is time to address the sceptics who say a trade deal including financial services cannot be done because it has never been done before.

"To them I say every trade deal the EU has ever done has been unique.

"The EU has never negotiated the same arrangement twice."

A stand-off over access to the single market for financial services is shaping up to be a key Brexit battleground before Britain leaves the EU in March next year.

The sector accounts for a tenth of the UK's economic output and the industry says it contributed £72bn in corporate and employee taxes last year.

Mr Hammond pointed out that the EU had previously wanted to include financial services in a now-stalled trade and investment deal with the US – though this was seen as a "challenging objective".

"It need not be so in a partnership between the UK and the EU," he said.

"Our markets are already deeply interconnected."

Theresa May said in a speech on Friday that a deal on financial services could and should be part of Britain's new relationship with the EU.

The UK wants to keep cross-border trade in the sector on the basis that each side preserve similar regulatory standards.

But this week, France said there was little chance of securing a deal that would provide the degree of access sought by financial services firms.

French economy minister Bruno le Maire said they might have to rely on a legal mechanism known as "equivalence", which allows countries from outside the EU to access the single market in limited circumstances – but where access can be withdrawn at short notice.

Meanwhile, a document drawn up by the EU General Secretariat has reportedly given a dismissive response to Mrs May's speech setting out her Brexit vision.

It described the speech as "a change in tone, but not in substance" and accused her of "double cherry-picking", according to the Guardian.