Britain could halve its headline corporation tax rate to 10% if the European Union refuses to agree a post-Brexit free trade deal or blocks UK-based financial services firms from accessing its market, the Sunday Times has reported, citing an unidentified source.

The newspaper said the idea had been put forward by British Prime Minister Theresa May's advisers amid growing fears other EU member states will take a hard line in Brexit negotiations.

The proposal would be used to try and persuade the EU to grant "passporting" rights for financial services firms to continue operating across the EU, the newspaper said.

"People say we have not got any cards," the newspaper quoted an unidentified source familiar with the government's thinking as saying.

"We have some quite good cards we can play if they start getting difficult with us. If they're saying no passporting and high trade tariffs we can cut corporation tax to 10%," the source was quoted as saying.

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Meanwhile, the head of the British Bankers' Association has warned that the financial services industry is already planning to move business overseas due to the uncertainty of the Brexit process.

Anthony Browne blamed fears that European Union politicians will want to erect trade barriers in an attempt to weaken the City of London during the Brexit negotiations for the planned moves.

Smaller banks could begin moving some operations overseas within weeks, with larger institutions following in the first few months of 2017, he predicted.

"Their hands are quivering over the relocate button," he said.

Writing in The Observer, he said: "Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications.

"It is the UK's biggest export industry by far and is more internationally mobile than most. But it also gets its rules and legal rights to serve its customers cross-border from the EU.

"For banks, Brexit does not simply mean additional tariffs being imposed on trade - as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services."

The industry would like to see the continuation of the EU's "passporting" regime, which allows financial services firms based in the UK to operate throughout Europe without seeking separate authorisation.

He warned that in European capitals and among British Eurosceptics "the rhetoric is hardening" and politics could trump the economic advantages of allowing the present system to remain relatively untouched.

"The problem comes - as seems increasingly likely, judging by the rhetoric - when national governments try to use the EU exit negotiations to build walls across the Channel to split Europe's integrated financial market in two, in order to force jobs from London.

"From a European perspective, this would be cutting off its nose to spite its face.

"It might lead to a few jobs moving to Paris or Frankfurt but it will make it more expensive for companies in France and Germany to raise money for investment, slowing the wider economy."

Banks have called for transition arrangements to be put in place after the UK leaves the EU but the uncertainty over the future - with years of negotiations with Brussels ahead - has left them with little option but to take steps to protect their futures.

Mr Browne said: "Banks might hope for the best but have to plan for the worst.

"Most international banks now have project teams working out which operations they need to move to ensure they can continue serving customers, the date by which this must happen and how best to do it.

"Their hands are quivering over the relocate button. Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year.

"London will survive as a global financial centre. Finance is inventive and will find a way through.

"But putting up barriers to the trade in financial services across the Channel will make us all worse off, not just in the UK but in mainland Europe."