Philip Hammond claimed a “disruptive” no-deal Brexit could have a £90 billion “hit” on the exchequer and suggested there will be “no money available” for Theresa May’s successor.
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.
He added all of the £26-27 billion “fiscal headroom” built up, and more, would be needed to respond to the immediate impacts of the UK leaving the EU without a deal.
In a further nod to the pledges made by Mr Hunt and Mr Johnson, the Chancellor said this meant there would be no cash available for long-term tax cuts or spending increases.
Government analysis suggesting a multibillion-pound “hit” to the exchequer in a no-deal scenario would also have to be factored in to future decisions, Mr Hammond added.
He also said it would be “wrong” for the Government to pursue no-deal, adding it will be for the House of Commons to ensure it does not happen.
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.”
Pressed further by Liberal Democrat Chuka Umunna (Streatham) about a no-deal Brexit, Mr Hammond joked it was “highly unlikely” he will still be chancellor under the new prime minister.
He added: “We’ve built up around £26/27 billion 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 in to future spending and tax decisions.”
In exchanges with shadow chancellor John McDonnell, Mr Hammond said: “I think I have been consistently clear that I believe leaving with a no-deal exit will be bad for the UK, bad for the British economy, bad for the British people.
“We cannot however rule out that that could happen, because it is not entirely in our hands, but I do agree with him that it would be wrong for a British government to seek to pursue no-deal as a policy, and I believe that it will be for the House of Commons, of which I will continue proudly to be a member, to ensure that that doesn’t happen.”