Brexit: Philip Hammond warns no deal will plunge UK into 1980s-style upheaval

Philip Hammond has warned that the upheaval after a no-deal Brexit will match that from the 1980s when entire communities were gutted as Britain’s economy transformed.

The chancellor also said the Treasury’s ability to undertake a “fiscal stimulus” – pumping taxpayer’s money into the economy to prop it up – would be severely limited due to the nation’s existing debts.

He warned there could be a decade of adjustment as industries tried to cope with no deal, something he branded “a terrible outcome for the UK economy”.

His intervention came on another torrid day for the prime minister as she tried to convince MPs to back her plans.

Speaking at the Treasury Select Committee, Mr Hammond was asked about the impact of no deal, replying that it would mean a “prolonged period of adjustment”.

He went on: “I suspect it would be rather like the adjustment after 1980, when over a period of time, perhaps nearly a decade, our economy made a significant adjustment away from certain patterns of industrial and commercial activity to a different set of commercial and industrial activities.”

The implementation of a new approach to monetary and competition policy in the 1980s, led by Margaret Thatcher, accompanied a decade of de-industrialisation and structural unemployment that devastated many communities but transformed the British economy.

Mr Hammond was also asked about what the Treasury’s response would be to the economic fallout of a no-deal Brexit, with him confirming that there would be a fiscal stimulus, a move to spend government money to create economic activity, similar to that undertaken by Gordon Brown in 2008.

But he went on to warn that there was only so much the government could do due to existing debt, and that ultimately business would have to change their models, leading to major upheaval.

He said: “It will fall to fiscal policy to carry much of the short-term burden, but over the medium term – bear in mind that our debt to GDP ratio is already unsatisfactorily high, so our fiscal capacity is limited – over the medium to longer term, the UK economy will have to adjust to the new reality.

“Many industries which depend on trade with the European Union will either have to significantly lower their costs to overcome frictional costs of being in a no-deal trading arrangements, or will have to look for other markets or capital, and labour will have to shift, probably more likely, into other areas of activity.”

It follows twin analyses from the Treasury and from the Bank of England last week suggesting a no-deal Brexit would lead to economic chaos.