In that scenario (assuming City won CL and Liverpool winning EL) Arsenal would be demoted to EL as the lowest ranked team whom hasn't qualified via winning either EL or CL.
CL - Leicester, Spurs, Liverpool, City
EL - Arsenal, United, West Ham
F'all - Saints
Actually, i think Arsenal would still get CL. Saints would still get f'all though. The EL spot Liverpool would have got for 7th actually goes to another country as teams get shuffled around.