Philip Hammond today admitted a no deal Brexit could mean planes were grounded in Britain on day one.
The Chancellor insisted the scenario was highly unlikely but said it was something which had to be prepared for in case talks fail.
Mr Hammond made the claim in evidence to the Commons Treasury committee today as he defended his refusal to immediately release billions of pounds to prepare for a no-deal Brexit.
He told the MPs he was prepared to commit cash but only at the ‘last point’ where it was possible to be ready on day one after a no deal Brexit.
And he said to the committee it was still unclear what a no deal Brexit would mean – claiming it could be a ‘bad tempered breakdown’ in talks or an agreed no deal conclusion.
The Chancellor said he would not release taxpayer funds to make ‘demonstration points’ about Britain’s preparations – telling the MPs every pound spent on redundant preparations could not be spent again on the NHS or other priorities.
Philip Hammond (pictured today giving evidence to the Trerasuryhas defied Brexiteers by refusing to pump billions of pounds into planning for ‘no deal’ with the EU
Mr Hammond’s appearance today came amid an apparent deadlock in talks in Brussels with EU leaders set to refuse to trigger trade talks at a summit next week.
He told the committee it was ‘theoretically conceivable that in a no-deal scenario there will be no air traffic moving between UK and EU’ on March 30, 2019.
But he insisted that ‘mutual self interest’ meant it was highly unlikely even if there is not a full deal between Britain and the EU in place.
The Chancellor he insisted he would commit billions in taxpayer cash to build a hard customs border and make other preparations at the last moment.
He said: ‘There will be points where it will be necessary to make go to no-go decisions around future programmes to be ready on day one.
‘I am clear we have to be prepared for a no deal scenario unless and until we have clear evidence that is not where we will end up.
‘What I am not proposing to do is allocate funds to departments in advance of the need to spend it. We should look at each area for the last point when spending can begin to ensure we are ready.’
He told the committee ‘every pound spent on a hard Customs border is a pound we can’t spend on the NHS, or social care, or deficit reduction’.
Mr Hammond said £250million had already been handed to departments making preparations.
He added: ‘At the moment, areas where we need to spend money we are spending money. I have already authorised £250million in expenditure.
‘There will be a rolling programme. There will be some areas we need to start spending in the new year if we can’t tell ourselves we are moving pretty assuredly to a transition agreement.’
The Chancellor has been facing demands from Brexit-backing ministers to do more to brace the UK for a ‘hard’ departure from the EU, as Brussels stalls over starting trade talks.
Mr Hammond made his claims in evidence to the Treasury Select Committee, chaired by Nicky Morgan (pictured today grilling the Chancellor)
The Chancellor said leaders of the 27 other EU nations need to recognise the ‘need for speed’ in agreeing an interim period of around two years to follow the official date of Brexit in March 2019.
Agreeing the terms of an interim period will clear uncertainty and reassure businesses and consumers that there will be no ‘cliff-edge’ leap to new rules, he said.
But a transition agreement is a ‘wasting asset’ whose value will decline the later it is reached, as businesses need to take investment and relocation decisions some time in advance, he told the committee.
Mr Hammond said: ‘It has a value today, it will still have a very high value at Christmas and early in the New Year, but as we move through 2018 its value to everybody will diminish significantly.
‘I think our European partners need to think very carefully about the need for speed in order to protect the potential value to all of us of having an interim period that protects our businesses and citizens and allows investment and normal business activity – contracting and so on – to carry on.’
Mr Hammond’s appearance today (pictured) came amid an apparent deadlock in talks in Brussels with EU leaders set to refuse to trigger trade talks at a summit next week
Mr Hammond said while the UK had ‘made the running’ in setting out how a post-Brexit settlement could take shape, the EU had ‘astonishingly’ failed to discuss what happens next.
‘Astonishingly, the most important question, which is what is our long-term relationship with the European Union going to look like, has not yet even begun to be discussed,’ he told the committee.
‘We have made the running in this and we really need our European Union partners to engage. It’s quite a small ask really.
‘Let’s sit down around a table and have a chat. That’s all we are saying.’
Mr Hammond told the committee there were many potential outcomes from Brexit.
And he told the MPs a ‘no deal’ Brexit itself showed a range of scenarios.
He said: ‘If it is a WTO regime with no deal, there are then two further potential levels that you have to consider.
‘One is no deal, WTO, but a friendly agreement that we are not going to reach a deal but we will work together to cooperate to make things run as smoothly as possible.
‘But, bluntly, we also have to consider the possibility of a bad-tempered breakdown in negotiations where we have non-cooperation, and, worst-case scenario, even a situation where people are not necessarily acting in their own economic self-interest. So we need to prepare for a wide range of scenarios.’
European Council president Donald Tusk last night effectively ruled out EU leaders giving the green light for trade talks at a crunch summit next week
Mr Hammond’s intervention came after Theresa May raised concerns among hardliners on the Tory benches by dodging questions about whether she would vote Leave if the referendum was held again.
The PM was a Remain supporter before the historic ballot last year – although she stayed largely silent during the campaign.
Mrs May’s de facto deputy Damian Green suggested last night he still believed the wrong decision had been taken.
‘I don’t resile from my views,’ he told the BBC’s Newsnight.
European Council president Donald Tusk last night effectively ruled out EU leaders giving the green light for trade talks at a crunch summit next week.
He said he was now only hoping there could be ‘sufficient progress’ on withdrawal issues – a financial settlement, citizens rights and the Irish border.
Mr Hammond set out his argument for last minute investment in The Times today, making clear Britain would be prepared for all outcomes, including leaving the EU with no deal.
In an intervention which infuriated Eurosceptics, the Chancellor said ‘we must be honest about the near-term challenges and complexities as we prepare to leave’.
He went on: ‘As Chancellor of the Exchequer, it is my duty to be realistic about these challenges, and to carefully navigate the economy through this process in a way that protects our jobs, supports our businesses, underpins the prosperity of working families, and secures our public finances for decades to come.
‘I also need to ensure that we are prepared for all outcomes, including a no-deal scenario.
‘The Government and the Treasury are prepared. We are planning for every outcome and we will find any necessary funding and we will only spend it when it’s responsible to do so.’
Theresa May, on a phone in on LBC last night, refused to say if she would vote Leave or Remain if the Brexit referendum was re-run
Mr Hammond also stressed the importance of avoiding a no-deal Brexit, as a lack of clarity about future trading terms is leading to business uncertainty and slowed investment.
‘I believe the best stimulus we can provide for the economy right now, is certainty,’ he wrote.
‘We will do that in two ways. First, by securing agreement on a time-limited implementation period – this is vital to give businesses and people the space to prepare for the future. Second, by reaching a deal on the terms of our future long-term relationship with the European Union.’
The comments could fuel pressure among some backbenchers for Mrs May to oust Mr Hammond from the Treasury, over his perceived negative approach to Brexit.
The premier has faced calls to reshuffle the Cabinet to restore her authority following a Conservative Party conference speech, which sparked a botched plot to eject her from Downing Street.
However, many Tory MPs would prefer her to sack of Foreign Secretary Boris Johnson after his recent spate of leadership manoeuvring.
Mr Johnson is likely to suffer a backlash when the powerful 1922 committee of Tory backbenchers meets tonight.
Environment Secretary Michael Gove is hoping to pour oil on troubled waters as the guest speaker at the meeting.
Asked on LBC on Tuesday if she was frustrated by Mr Johnson, Mrs May said ‘Boris is Foreign Secretary’ and insisted he backed her plans for Brexit.
Asked by BBC Newsnight’s Emily Maitlis if he thought Britain would be better ‘if it remains’, Mr Green replied: ‘It would have been but the public took their view.
‘I’m a democrat, I believe that if people have spoken, it’s the job of democratic politicians to do their best actually to put in place what people wanted.’
Asked by the presenter if he could say ‘hand on heart Brexit was the right decision for the country’, the First Secretary of State replied: ‘I argued against it but the country took the decision, I’m a democrat, I respect that decision.’