Premium

Philip Hammond to warn that no-deal Brexit will drain over £26bn of the UK's economy

Philip Hammond
Philip Hammond

Philip Hammond will say a second referendum could be the way to "break the impasse" with Brexit. The Chancellor will use his annual Mansion House speech on Thursday to warn Tory leadership contenders to "be honest with the public" and admit that Parliament is likely to reject both the Withdrawal Agreement and no deal.

Mr Hammond is expected to say: "If the new Prime Minister cannot end the deadlock in Parliament, then he will have to explore other democratic mechanisms to break the impasse."

A source close to Mr Hammond said this “leaves open” the possibility of both a second referendum and a general election.

However he will also warn that an election "could put Jeremy Corbyn in Downing Street” - suggesting the referendum would be his preferred option.

Mr Hammond will also use the Mansion House speech - expected to be his last as Chancellor - to warn the five leadership that, whoever of them become Prime Minister, should be prepared to find their promised Brexit plans “undeliverable”.

“Unless there is a general election, the Parliamentary arithmetic will not change,” he will say. “Parliament will not allow no deal; and on the evidence so far, Parliament will not support the only deal that is on the table.

“Secondly, the European Union will not renegotiate the deal. And, thirdly, the Irish Question, and with it the backstop, will not go away.”

He will say the real question to ask candidates is not “What is your plan?”; but “What is your plan B?”.

“The candidates need to be honest with the public. They need to recognise and address the difficult trade-offs inherent in delivering Brexit.”

In a warning to the next Prime Minister, Mr Hammond will say: “If he fails, his job will be on the line – and so, too, will the jobs and prosperity of millions of our fellow citizens.”

Speaking to 600 representatives from the financial services sector and Mark Carney, the governor of the Bank of England, Mr Hammond will also say a no deal Brexit would soak up all his £26.6billion “fiscal headroom”.

This will be seen as a warning to leadership contenders, including Boris Johnson, who have said they will use the £26.6 billion to fund tax cuts and other spending pledges.

Mr Hammond will say: “There is a choice: either we leave with No Deal, or we preserve our future fiscal space – we cannot do both.”

Want the best of The Telegraph direct to your email and WhatsApp? Sign up to our free twice-daily Front Page newsletter and new audio briefings.