May given new warning on Brexit deal for the City

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Theresa May has received a fresh warning that she could struggle to get a Brexit deal which includes the UK’s lucrative financial sector.

In her Mansion House speech on Friday, the Prime Minister set out her plans for Britain and the EU to access each other’s financial markets based on a commitment to maintaining the same “regulatory outcomes”.

However Stefaan De Rynck, a senior adviser to the EU’s chief negotiator Michel Barnier, said that since the global crash of 2008, the EU had increasingly moved away from a system of “mutual recognition” by member states of each others’ rules to more centralised regulation.

Speaking at the London School of Economics on Monday, he 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.

Philip Hammond says a Brexit deal which excludes financial services would lack credibility (Matt Dunham/PA)

“If you are in a very integrated market but you don’t have the joint enforcement structures then you can see the potential for all kinds of difficulties.”

His comments came as Philip Hammond told MPs that a deal which did not include financial services would lack credibility.

The Chancellor, who his due to set out the Government’s thinking in more detail in a keynote speech on Wednesday, the EU would find it impossible to replicate the financial “eco-system” of the City of London it was excluded.

“I don’t think it is credible. I don’t think it reflects the real world in which we live,” he told the Commons European Scrutiny Committee.

“(Given) the scale of the UK-based financial services sector and the deep involvement it has in the operation of the real economy in the EU, I don’t think it is in anybody’s interest to sever that link in key areas.”

The latest spat came as the European Parliament’s Brexit co-ordinator Guy Verhofstadt was heading to London for talks on Tuesday with senior ministers, including Brexit Secretary David Davis, Cabinet Office Minister David Lidington and Home Secretary Amber Rudd.

The former Belgian prime minister has warned Mrs May must move beyond the “vague aspirations” in her Mansion House speech if she is to secure a free trade deal with Brussels.

Earlier Irish premier Leo Varadkar poured cold water on a suggestion by the Prime Minister that the customs arrangements on the US-Canada border could provide a model for Northern Ireland and the Republic after Brexit.

“I visited it back in August, and I saw a hard border with physical infrastructure with customs posts, people in uniforms with arms and dogs and that is definitely not a solution that is one that we can possibly entertain,” Mr Varadkar said.

Meanwhile the DUP will underline their opposition to the EU’s “fallback” position – which would effectively keep Northern Ireland in the single market if no other solution could be found – in talks in Brussels with Mr Barnier.

DUP leader Arlene Foster – whose party props up the Conservative Government at Westminster, said: “We will not countenance any proposal which would create a new border in the Irish Sea between Northern Ireland and Great Britain.”

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