Chancellor Philip Hammond warns of 'large fiscal consequences' in no-deal scenario

Pro-EU campaigners described the chancellor's letter as a 'brexit bazooka'

Philip Hammond has warned of “large fiscal consequences” from a no-deal Brexit, just hours after cabinet colleague Dominic Raab attempted to play down the risks arising from such a scenario.

Described as a “Brexit bazooka” by pro-EU campaigners, the chancellor reiterated a previous government analysis which claimed borrowing could be around £80bn a year higher by 2023-34 if Britain crashes out of the bloc.

In a letter to senior Conservative MP Nicky Morgan, who chairs parliament’s Treasury Select Committee, Mr Hammond said the January analysis estimated a no-deal scenario could result in GDP falling by as much as 10 per cent.

“GDP impacts of this magnitude, were they to arise, would have large fiscal consequences,” he added.

His comments risk infuriating Brexiteers in the Conservative Party as Mr Raab, the Brexit secretary, attempted to reassure the public in a major speech given to coincide with the government publishing a series of technical notes highlighting preparations for a no-deal outcome.

Mr Hammond said the initial analysis is undergoing a “process of refinement” ahead of a parliamentary vote on any deal, and noted scenarios which have higher barriers to trade with the EU are expected to have a “more damaging effect” on the economy and public finances.

On the government’s preferred approach, the chancellor went on: “It is expected that the economic and fiscal impacts of the white paper model will be substantially better than no deal, protecting jobs and livelihoods and supporting both the UK and EU’s commitments to no hard border between Northern Ireland and Ireland.”

He also mounted a defence of the government’s preferred approach, which was outlined in a white paper following a cabinet summit at Chequers, by saying the economic and fiscal impacts of this outcome would be “substantially better” than no deal.

In reply to his letter, Ms Morgan said: “The chancellor has confirmed that the government forecasts a disastrous hit to our economy and living standards in the event of a no-deal Brexit.

“The committee will expect an updated analysis to be published in good time, to inform parliament’s key decisions on the final deal.”

Seizing on the correspondence, Tom Brake, the Liberal Democrats Brexit spokesman, said it is now “undisputed” the country “would fall into billions of pounds of further debt”.

And Labour MP Chris Leslie, a supporter of the People’s Vote campaign for a fresh EU referendum, said: “On the same day the Brexit secretary was desperately trying to play down the risks of no deal, the chancellor has fired off a Brexit bazooka by admitting that no deal, would mean £80 billion in extra borrowing or cuts each year by 2033.”