Michel Barnier rules out special deal for City of London as Theresa May 'plans third major Brexit speech'

Michel Barnier has placed the European Union on a collision course with the UK ahead of the start of post-Brexit trade talks after he ruled out a special deal to protect the City of London’s ability to trade on the continent.

The EU’s chief Brexit negotiator said if the UK leaves the European single market - as Theresa May has long maintained that it will - then the country’s crucial financial services sector will lose the right to trade freely.

Mr Barnier’s comments are likely to be seen as a major blow to Mrs May’s hopes of striking the bespoke deal with Brussels that she has targeted.

It came amid reports that the Prime Minister is planning a third major Brexit speech in which she will set out her post-Brexit vision for the UK.

David Davis, the Brexit Secretary, recently said the UK could seek a “Canada Plus Plus Plus” deal with the aim of combining the trade elements of the deal done between Brussels and Ottawa with extra provisions to include arrangements for financial services.

But in an interview with a number of European newspapers, including The Guardian, Mr Barnier made clear he was not open to a free trade agreement which included financial services.

"There is no place (for financial services)," he said.

"There is not a single trade agreement that is open to financial services. It doesn't exist."

Mr Barnier blamed the potential outcome on the “red lines that the British have chosen themselves".

"In leaving the single market, they lose the financial services passport," he added.

However, in a sign of the potential Brexit row to come, British government sources told The Guardian that Mr Davis is intending to tell the EU that it will not be allowed to “cherry pick” the sectors of the UK's economy it wants included in any deal on future trading arrangements. 

The Brexit Secretary is likely to insist that Britain will not allow Brussels to separate services from goods during negotiations.

Mr Barnier’s incendiary comments came ahead of a crunch meeting of Mrs May’s Cabinet on Tuesday when ministers will discuss what they want the UK’s post-Brexit “end state” to be for the first time.

The Prime Minister’s so-called "Brexit war cabinet" met on Monday for a preemptive discussion on the topic.

During that meeting, Philip Hammond, the Chancellor, and Amber Rudd, the Home Secretary, were left isolated as the only senior Cabinet ministers holding out against the UK diverging from Europe after Brexit.

The pair were the sole members of the 10-strong Cabinet Brexit sub-committee to argue the case for maintaining EU alignment, saying the status quo would be better for existing businesses.

Boris Johnson, the Foreign Secretary, and Michael Gove, the Environment Secretary, rallied other ministers around their vision of Britain gradually breaking from EU rules and regulations so it can quickly take advantage of future business opportunities, rather than being shackled to a slow-moving, protectionist EU.

Mrs May has repeatedly made clear that she intends to take Britain out of the single market and customs union after Brexit, effectively ruling out Norway-style free access to trade with the EU.

But she has suggested that a "deep and special partnership" with the remaining EU should be more extensive than the agreement struck with Canada in 2016, which covers goods but not services.

Mrs May is likely to use a major speech in the new year to set out what the UK’s post-Brexit “end state” will be, according to reports.

A source close to the Prime Minister confirmed to Politico that such a speech is being planned and that it will effectively be the successor to her Lancaster House and Florence addresses.

In terms of timing, the source said they were “not sure if it will be in January, but that’s how it will happen”.

Brexit Bulletin An essential briefing on the day’s politics news - free and direct to your inbox each afternoon Sign up View sample