Theresa May's bespoke Brexit deal: ambitious trade deals and best possible access to EU markets

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In the 105-minute meeting, the Cabinet did not discuss the position set out so far by the European Commission's chief negotiator, Michel Barnier, whose vision of a free trade agreement similar to that struck with Canada in 2016 differs sharply from Mrs May's demand for a bespoke UK deal delivering a "deep and special partnership".

In comments to a number of European newspapers, Mr Barnier said there would be no special arrangement to allow City firms to trade freely in the EU if Britain leaves the single market.

"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."

Describing the position as a result of "the red lines that the British have chosen themselves", he stated: "In leaving the single market, they lose the financial services passport."

Mrs May's spokesman said the PM told Cabinet that she was seeking "a significantly more ambitious deal than the EU's agreement with Canada".

And she ruled out the option of a Norway-style membership of the European Economic Area as "democratically unsustainable" because it would mean the UK having automatically to observe rules and regulations which it had no influence over.

The PM's spokesman said she told ministers that the starting point for discussing the UK's preferred end state was her own speeches at Lancaster House and in Florence earlier this year, in which she ruled out membership of the single market and customs union, but voiced her hope for a new "deep and special partnership" spanning the economic and security relationship with the EU.

She told Cabinet it was clear that the Government was seeking "a deal, which secures the best possible trading terms with the EU, enables the UK to set rules which are right for our situation and facilitates ambitious third-country trade deals", said the spokesman.

Britain would need to be "creative" in designing proposals for a future economic partnership, Mrs May said.

And she stressed the positions adopted by the Government would be in the national interest, adding that she was "confident of building a dynamic post-Brexit economy which will deliver growth, jobs, prosperity and a better future".

The PM's spokesman said Mrs May stressed that the kind of deal she was looking for would be in the interests both of the UK and the remaining EU.

There was agreement on her approach from the ministers attending Cabinet, 25 of whom spoke during the "very detailed" discussion, he said.

"The Cabinet was unified behind the Lancaster House and Florence speeches and behind the deal which she agreed on Friday," said the spokesman.

His comments followed reports of a growing difference over the level of regulatory alignment with the EU which Britain should maintain after Brexit, with Philip Hammond and Amber Rudd understood to favour closer ties with the bloc than convinced Brexiters like Boris Johnson and Michael Gove, who want freedom to ditch red tape in order to facilitate trade deals elsewhere in the world.

Asked about Mr Barnier's comments, the PM's spokesman said it was to be expected that the Commission would set out its position at the start of the second phase of Brexit negotiations.

In comments likely to infuriate hardline Brexiters, Mr Barnier said the UK must follow all EU rules during the expected two-year transition period following the official date of Brexit in March 2019 - including laws introduced during that time with no British input into decisions.

And he insisted the UK must accept the "complete architecture" of the EU - including the role of the European Court of Justice, free movement of people and the Commons Fisheries Policy - during transition, saying: "It will be essentially the economic status quo."

While Britain can negotiate trade deals with other countries during the transition, he said they cannot enter into force until the period is over, probably in 2021.

He believed that a UK/EU free trade deal could be agreed within the two-year transition, but said it would have to be ratified by more than 35 national and regional parliaments across the EU27, each of which holds a veto.

Mr Barnier made clear that the EU would respond firmly to any deviation from the framework of single market regulations which might give the UK a competitive advantage through lower taxes or weaker standards.

"We will not accept from the other side, regulatory competition against social rights, against environmental rights, against consumer rights and against fiscal regulations... or against financial stability," he said.

And in reference to US pressure on the UK to ditch EU food standards in the hope of securing a free trade deal, he said: "We will not accept chlorinated chickens, nor other products that do not meet our food standards."

Gavin Williamson, the Defence Secretary, when pressed during an interview with the London Evening Standard over Mr Barnier's suggestion there could not be financial services included in a trade deal, observed: "Michel Barnier says lots of things. He is a negotiator... "Any deal we do with the European Union is going to be a bespoke deal. I am quite sure we can deliver the services part of the package that is so vital for the City of London."

Pressed on whether it could be part of a trade deal, Mr Williamson said he could not see why not.

Labour's Chuka Umunna, a leading supporter of the Open Britain campaign, which seeks close ties with the EU, said: "It is disgraceful and a dereliction of duty that the Cabinet has only today - 18 months after the referendum - had an opening full discussion about what our future relationship with Europe should look like.

"The problem is clear. The Cabinet cannot agree among themselves about what Brexit outcome they want beyond an unrealistic ambition to have cake and eat it.

"Going into the most complex negotiations in modern British history without a clear plan of action is irresponsible and very unlikely to deliver what the Government promised - a deal that gives us the 'exact same benefits' as we enjoy now."

Liberal Democrat Brexit spokesman Tom Brake said: "Today's rare display of Cabinet unity won't fool anyone.

"We all know David Davis is incapable of negotiating a deal that will satisfy his own backbenchers while protecting people's jobs and living standards.

"It is families across the country, not Conservative ministers, who will pay the price for this botched Brexit."

Meanwhile, Miles Celic, Chief Executive officer of trade body TheCityUK, said: "It might be Christmas but Michel Barnier doesn't need to play Scrooge.

"Just because financial services have not been encompassed in free trade agreements to date is no reason to dismiss them from a future UK/EU free trade agreement.

"Services make up around 80 per cent of the UK's economy and around 70 per cent of the EU's, with financial services making up a significant component of that.

"It is vital for the future competitiveness of the UK, and Europe as a whole, that UK and EU negotiators work to secure an ambitious and comprehensive deal," he added.