The Government must focus on protecting the valuable finance industry, particularly banks, as it negotiates the UK’s exit from the EU, a think tank has warned.

The call comes as City and Canary Wharf operations begin to make contingency plans for the loss of “passporting” forcing them to operate from EU countries in order to get easy access to all.

While many believe the City is such a global asset that it will withstand a “hard Brexit”, think tank Open Europe said it must find a solution for the most vulnerable parts of the sector, including banks.

Vincenzo Scarpetta, Open Europe’s senior policy analyst, said: “The significance of the financial services passport depends on the industry. It is important to business in some sectors, but has much less value in others.

“To claim that the success of the UK as a global financial centre is entirely reliant on the passport is exaggerated.

“In the upcoming negotiations with the EU, the Government needs to focus its efforts on retaining or replicating a passport-like relationship in those sectors where it is most valuable.”

The report is released on the day that the Financial Times has reported that Prime Minister Theresa May may be looking for a softer Brexit deal particularly for Canary Wharf and the City.

The FT reports that “several ministers” have revealed that the Cabinet is considering paying “billions of pounds into the EU budget”, with one telling the paper: “We would have to be careful how we explained it.”

Politicians gear up for a fight

First Minister and SNP leader Nicola Sturgeon after she addressed the Scottish National Party Conference 2016

The political tug-of-war continues within the cabinet over the scale and nature of Britain’s withdrawal from the UK – with the crashing pound and #Marmitegate a symbol that a hard line has a tangible impact on people’s prospects.

Reports have surfaced that Chancellor Philip Hammond is prepared to resign rather than let the “hard Brexiteers” win the argument while Foreign Secretary Boris Johnson’s belief in the project has been called into question again with the emergence of a pro-Europe column that was never published.

Meanwhile, in the House of Commons “soft Brexiteers” in all parties are making an unlikely alliance to ensure the Government does not pursue negotiations in secret and Scottish First Minister Nicola Sturgeon has ramped up the independence referendum rhetoric , saying Scotland could stay in the single market on its own.

New York a threat

Canary Wharf

Referring to the City’s position, Mr Scarpetta said: “It is essential for the Government to avoid a cliff-edge situation.”

“The financial services industry needs maximum certainty on future trade arrangements with the EU as early on as possible in the negotiations.

“Firms have been planning for the worst, and some of them may start putting those plans into motion if uncertainty drags on for too long.

“The UK will need to convince the EU-27 that keeping financial markets open across the Channel is a matter of mutual interest.”

It comes after Sir Jon Cunliffe - the Bank of England’s Deputy Governor for Financial Stability - told a House of Lords sub-committee that it would be “highly unlikely” in the short term that the capital’s unique financial ecosystem would be recreated in Europe. However, he said services could shift to New York.