Rishi Sunak promised to make London the best place in the world to do business yesterday after Boris Johnson admitted that his deal fell short on provisions for the City.
The prime minister said that his agreement with the European Union “perhaps does not go as far as we would like” on financial services, compounding fears about the impact of Brexit on the sector.
Banks, insurers and other financial firms based in Britain will not be granted automatic access to operate in EU markets. Instead they will have to be deemed by Brussels to be governed by rules as robust as those within the bloc.
Mr Johnson conceded that financial services was an area in which the deal did not meet the government’s ambitions. He told The Sunday Telegraph that the agreement “perhaps does not go as far as we would like” but that there would be access for solicitors and barristers and “a good deal for digital”.
The chancellor attempted to play down concerns by emphasising that Britain was “best in class” at financial services. “We’re embarking on that journey, for example examining how we make the City of London the most attractive place to list new companies anywhere in the world,” Mr Sunak said.
“Our financial services industry is something we’re enormously proud of. It’s something we’re best in class at, it contributes an enormous amount to our economy, employs over a million people across the country — not just in the City of London.”
The chancellor said that ministers would “remain in close dialogue with our European partners when it comes to things like equivalence decisions”.
The financial sector’s fortunes hinge on whether Brussels grants it “equivalence”, recognising that since its rules and regulations are likely to remain similar to the bloc’s there should be easy cross-border access.
The EU has made it clear that Britain will need to wait until after January 1 to learn how much access its financial services companies will have, and that its decision will hinge on how far Britain diverges from European standards.
The government has indicated that it intends to diverge from EU rules on financial services next year but has yet to set out details.
In a document published on Christmas Eve, the European Commission said: “A series of further clarifications will be needed [from the UK] in particular regarding how the UK will diverge from EU frameworks after December 31.” It added that therefore it “will consider equivalence when they are in the EU’s interest”.
Sam Lowe, a trade policy expert at the Centre for European Reform, warned that even if equivalence was granted “we should not assume it will be permanent”. Anneliese Dodds, the shadow chancellor, said that the deal was “very thin” on financial services and that the government “needs to act speedily to sort that out”.
Britain and the EU are due to hold talks early next year to work on a memorandum of understanding on co-operation on financial services, with the aim of reaching agreement by March.
Trade experts said yesterday that this was one of several areas that the deal left unresolved. Raoul Ruparel, who was Theresa May’s special adviser on Europe, said: “It became a pretty defensive negotiation. Both sides became focused on defending their key interests.”
The Institute for Public Policy Research said that the deal left workers’ rights and environmental protections in Britain at risk of erosion and that it would stunt the economic recovery. Marley Morris, a director at the think tank, said: “The commitments on labour and environmental standards are considerably weaker than expected; there is only a commitment not to lower current levels of protection to the extent that any reductions may affect trade or investment.”
Mr Johnson said that Britain would not look to lower its standards, telling The Sunday Telegraph: “All that’s really saying is the UK won’t immediately send children up chimneys or pour raw sewage all over its beaches. We’re not going to regress, and you’d expect that.”
John Allan, the chairman of Tesco, said the deal was “pretty satisfactory” and that the lack of tariffs meant the impact on food prices would be “very modest indeed”. He told BBC Radio 4 that it should “enable us to start to address the challenges and opportunities our economy has got in a much more full-blooded way”.