Philip Hammond to attempt rescue of UK's hopes for 'comprehensive' trade deal with the EU after Brexit

Chancellor’s speech will reject the bloc’s insistence that the option of including lucrative financial services ‘doesn’t exist’

Philip Hammond will try to rescue Britain’s hopes for a “comprehensive” trade deal with the European Union after Brexit, when he delivers a major speech next week.

The Chancellor will insist that services, including those of the financial sector, must be included in any agreement – rejecting the EU Brexit negotiator’s view that the option “doesn’t exist”.

Michel Barnier’s stance means the UK could face the prospect of a “Canada-style” deal and a possible exodus of financial services firms from the City of London, with a dramatic loss of tax revenue.

Speaking in the Commons, Mr Hammond said the UK would not view any proposed deal with the EU as “fair” unless Brussels gave way on services.

“We are clear that a future comprehensive trade partnership with the European Union must include goods as well as services,” he told MPs.

“A deal can only be done if it is fair to both sides and, because of the shape of the UK economy, it would be very difficult to see how any deal could be fair if it doesn’t include services.”

Mr Hammond – without mentioning Mr Barnier’s name – said he had “heard it asserted that it is impossible”.

But he insisted: “I don’t believe that is the case. Next week, I shall make a speech in which I shall set out our view as to how it is possible to include services within such a trade deal.”

The Chancellor did not explain how he would persuade the EU to shift its stance, when talks on a future trade deal get under way – the UK hopes – in April.

A key objective for the UK is a treaty that allows London to maintain its position as perhaps the world’s leading global financial centre.

But, in January, Mr Barnier said: “There is not a single trade agreement that is open to financial services. It doesn’t exist.”

The implication was that any deal would only cover goods and mimic the Comprehensive Economic and Trade Agreement, which came into force provisionally between Canada and the EU last year.

Mr Barnier suggested a post-Brexit trade deal could include close regulatory cooperation, but not the free flow of services so vital to the City.

In addition, the EU-Canadian deal also includes a “most favoured nation” clause, which would require Brussels to extend to Canada any more beneficial terms it might offer to London.

Mr Hammond did not make a contribution in the “road to Brexit” speeches delivered by the Cabinet over the last couple of weeks – triggering claims that No 10 had “silenced” its most prominent hard-Brexit opponent.

Now his speech will come after the Prime Minister’s, on Friday, and is intended to set out what Britain really wants from future trade talks.