Hammond came to the meeting directly from Germany, where he has been discussing the possibility that UK financial services could have access to the EU market, if the UK agrees to continue making contributions to the EU budget. Sources say that the Germans are amenable to this kind of arrangement.
There are, however, several big hurdles to this proposal.
Firstly, hard Brexit supporters will not like it. They will point out, quite rightly, that if the UK is paying in to the EU budget and is not diverging from EU market rules (as per the agreement with the EU last year on the Northern Irish economy), then what is the point of Brexit? We will have simply given up our voting rights in the EU but will still have all the main obligations of EU membership.
Second, while the German government may be pragmatic about this deal, there is no guarantee that other EU members and the Commission will be quite so willing to let London stay as the de facto banking capital of Europe. Michel Barnier and President Macron in particular seem to believe that the European banking hub should be within the remaining EU.
Frankfurt is already going to be the new home of the EU banking authority, and Amsterdam, Milan and Paris also want to become the new go-to city for international banking. They are particularly keen to host the large American and Asian banks and funds, and to collect the tax revenues that this would bring. Financial services also creates jobs in many sectors, including property, retail, hospitality, medicine and education.
Our assessment is that such a deal is politically unlikely, but not impossible. Even without such a deal, banks might choose to stay in London anyway, due to the costs of relocating. There are many aspects of the UK that banks like, not only our EU membership. The relatively low taxes, light regulation, English language environment, global connectivity and flexible labour market all make London a good place to do business, and much of that might not change after we leave the EU.
But if banks do start to leave, this will be bad news for the UK economy and many UK jobs – not only in banking.
Recent efforts to persuade the banks to stay, therefore, are crucial for May, Hammond and the UK.