Brexit: Philip Hammond warns Boris Johnson over dangers of no-deal outcome

Chancellor expected to dismiss Brexit plans of all four remaining leadership contenders

Philip Hammond is to issue a stern warning to Boris Johnson that no Conservative government should pursue a no-deal Brexit which would hit prosperity and risk the break-up of the United Kingdom.

The chancellor will signal his readiness to be a thorn in the side of any incoming prime minister determined to take Britain out of the EU without a deal, in a high-profile speech in which he is expected to vow to “fight and fight again” for prudent financial management and the union.

Mr Hammond is expected to dismiss the Brexit plans of all four remaining leadership contenders, saying their hopes to strike an improved deal with Brussels are contrary to the “immutable truths” of Westminster and EU politics.

And he will challenge them to spell out their “plan B”, warning that if the new PM is unable to secure a parliamentary majority for a deal, he will have to use “other democratic mechanisms” – a general election or referendum – to break the deadlock.

With Mr Johnson the runaway favourite in the race to succeed Theresa May, Mr Hammond is thought unlikely to remain in post as chancellor in the new cabinet to be formed next month.

But he is proving fiercely determined to protect his legacy of bringing the nation’s finances closer to balance and building up £26bn of “headroom” to act as a buffer against turbulence in the case of no deal.

In a pointed message to the four leadership candidates, he is expected to warn that even short-term disruption from a disorderly no-deal Brexit in October could soak up all of this headroom and more.

And he is expected to say that the fiscal and monetary tools available to smooth a no-deal withdrawal would provide only “temporary” protection and could not save the UK economy from shrinking.

In his annual Mansion House speech on Thursday, he is expected to say that the Conservative Party has “two core, unshakeable beliefs” in the paramount duty to ensure Britain’s prosperity through the market economy and prudent management of our public finances and to preserve the union.

“I cannot imagine a Conservative and Unionist-led government actively pursuing a no-deal Brexit, willing to risk the union and our economic prosperity and a general election that could put Jeremy Corbyn in Downing Street to boot,” he is expected to say.

“And I will not concede the very ground we stand on. I will fight, and fight again, to remake the case for pragmatism and, yes, for compromise in our politics – to ensure an outcome that protects the union and the prosperity of the United Kingdom.”

The fiscal headroom built up by the Treasury will give the new PM “genuine choices for additional spending or tax cuts” so long as he avoids a damaging no-deal Brexit, Mr Hammond is expected to say.

“There is a choice – either we leave with no deal or we preserve our future fiscal space – we cannot do both.”

Mr Hammond is expected to argue that any incoming PM will be faced with the “immutable truth” that the current parliament will not support either a no-deal outcome or the agreement obtained last November by Ms May, that the EU will not renegotiate the deal and that the problem of the Irish backstop will not go away.

“The question to the candidates is not ‘What is your plan?’ but ‘What is your plan B?’,” he is expected to say.

“If your plan A is undeliverable, not having a plan B is like not having a plan at all.

“So, the candidates need to be honest with the public.

“They need to recognise and address the difficult trade-offs inherent in delivering Brexit – how will they balance protecting the economy and our precious union with delivering the referendum decision? How would they manage a no-deal Brexit when most of the levers to do so are in the EU’s hands?

“The candidates need realistic strategies for taking the UK economy out of the holding pattern in which it has been stuck for the last nine months and landing it safely on the runway marked ‘prosperity Brexit’.

“Because we cannot allow ourselves to be forced to choose between our democracy and our prosperity. If the new prime minister cannot end the deadlock in parliament, then he will have to explore other democratic mechanisms to break the impasse.

“Because if he fails, his job will be on the line – and so, too, will the jobs and prosperity of millions of our fellow citizens.”