No-deal Brexit would require a new Budget, chancellor admits

Mr Hammond also indicates Treasury would be unable to fulfil the PM's commitment to end era of austerity if negotiators failed to secure deal

Philip Hammond has admitted a no-deal Brexit would require an emergency Budget, as he indicated Theresa May’s promise to end the era of austerity would also be in jeopardy.

In a stark warning, the chancellor said the government would need to look at a “different approach” to the future of the UK’s economy if the prime minister fails to secure a deal with the European Union.

While Mr Hammond said he was confident Ms May would secure an agreement with Brussels, he added the Treasury would take “appropriate fiscal measures” to protect the British economy in such a scenario.

On the eve of the Budget, he revealed the Treasury had built up a “reserve of borrowing power” that would enable him to intervene. But he warned: “The economy will change – it will have to restructure itself over a period of time and that will be a fairly major transition.”

Mr Hammond’s remarks were immediately seized upon by the Tory MP and prominent Eurosceptic Jacob Rees-Mogg, who dubbed the Treasury the “last bastion of Remoanerism” and described the chancellor’s admission as a “punishment Budget”.

Pressed on whether the government would be able to end austerity without a Brexit deal, Mr Hammond said on Sunday: “If we were to leave the European Union without any deal – and I think that’s an extremely unlikely situation but of course we have to prepare and plan for all eventualities, as any prudent government would – if we were to find ourselves in that situation then we would need to take a different approach to the future of Britain’s economy.

”We would need to look at a different strategy and, frankly, we’d need to have a new budget that set out a different strategy for the future.”

Asked if Britain would be worse off after Brexit, regardless of whether there was a deal, Mr Hammond told Sky News’ Sophy Ridge on Sunday programme: “Over my lifetime, people’s living standards have almost doubled and we want to go on seeing that growth in living standards so that we can make good on our promise to the next generation that they too will be better off than their parents.”

The chancellor also hinted he would use his Commons statement on Monday to provide additional funding to smooth the transition to universal credit, amid warnings low-income families are being driven into debt.

“I’ve already put over £2bn pounds into, over the last two budgets, smoothing that transition,” he said.

“We continue to look at how this process is working and if we find cliff edges and difficulties, frictions in the move from the old benefits system to universal credit, then of course we will always try to smooth those out and be pragmatic about it.”

Appearing after Mr Hammond on the same programme, his opposite number, John McDonnell, said he was “really shocked” by the chancellor’s interview, accusing him of having a “callous complacency about this week’s Budget, and the future”.

“He seems to have accepted a no-deal Brexit,” the shadow chancellor added.