Philip Hammond said that leaving the European Union without a deal in place would hit nation’s coffers hard – far more than is set aside to cope with such an outcome.
The Chancellor poured scorn on pledges from Tory leadership hopefuls Jeremy Hunt and Boris Johnson, telling MPs he is not in favour of “ad hoc” spending or tax cut commitments being made.
And he claimed that a no deal exit would cause such a dent to the UK economy the £27billion war-chest created to deal with its impact would have little impact.
But a senior cabinet source told the Daily Express yesterday that preparations for leaving the EU are more advanced than people think.
“It’s not really a binary argument between deal or no deal,” he said. “Even if we leave without a deal there will still be many agreements in place between the UK and the EU to make sure trade is done, aeroplanes fly and electricity is available.
“We will have had an extra six months since March 29 and although things have changed we are in a strong position. There will be no armageddon as some people in project fear are predicting.”
The clash lays bare the deep Brexit divisions within Theresa May’s Cabinet.
Speaking in the Commons Mr Hammond pointed to Government analysis suggesting a multi-billion-pound “hit” to the exchequer in a no deal scenario would also have to be factored in to future decisions.
His intervention comes after Mr Hunt and Mr Johnson both declared they are prepared to take the UK out of the EU without a deal.
Mr Johnson has taken a more hardline approach, saying the exit must happen by the October 31 deadline “do or die”, but Mr Hunt said he would ask for a delay if a deal was in sight.
Speaking in the Commons, Mr Hammond said the next prime minister will have to decide whether to conduct a full three-year spending review or focus on a single-year approach this autumn, depending on what they judge right for the circumstances.
He also said: “The purpose of a spending review is these things can be looked at in the round, and the responsible way to do a spending review is to first set the envelope of what is affordable and then to look at the different bids, which will, I can confidently predict, greatly exceed the available envelope of spending power, and prioritise.
“That’s the difficult business of Government.
“That is why I’m not in favour of ad hoc spending commitments or tax cut commitments being made.”
He added: “We’ve built up around £26/27billion of fiscal headroom and the purpose of having that headroom is precisely in order to protect the UK economy from the immediate effects of a possible no-deal exit.
“But I have no doubt whatsoever that in a no deal exit we will need all of that money and more to respond to the immediate impacts of the disruption of a no-deal exit, and that will mean there is no money available for longer-term either tax cuts or spending increases.
“But let me go further, the Government’s analysis suggests that in a disruptive no-deal exit there will be a hit to the exchequer of about £90 billion.
“That will also have to be factored into future spending and tax decisions.”
Another senior Government source pointed out yesterday that Mr Hammond’s calculations were based on Mrs May’s Chequers proposal which had been rebuffed by Parliament.
“He’s had so much to say about a no deal Brexit he should have stood for Prime Minister himself,” the source said.