Philip Hammond will on Thursday tell City of London leaders that Britain may need a general election or a second referendum to break the Brexit impasse, saying that Tory leadership contenders are not being straight with the public.
In what will be seen as a valedictory speech at Mansion House, the chancellor will signal he is making it his last mission to halt a no-deal Brexit, warning that it would inflict serious damage on the UK’s finances.
Boris Johnson and the other three remaining Tory leadership candidates have all promised to renegotiate Britain’s EU withdrawal agreement and said that — if necessary — they would countenance a no-deal Brexit.
Mr Hammond is expected to tell his City audience that none of the contenders to succeed Theresa May as prime minister — also including foreign secretary Jeremy Hunt, environment secretary Michael Gove and home secretary Sajid Javid — is being realistic and that they all need to have a plan B.
The chancellor is due 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 second referendum or general election have been mooted as routes out of the deadlock.
Mr Hammond will warn that Mr Johnson — or another Tory prime minister — might quickly find that Mrs May has negotiated “the best deal possible” with the EU and that parliament could continue to reject it as well as a no-deal Brexit.
“Then the question to the candidates is not ‘What is your plan?’; but ‘What is your plan B?’. If your plan A is undeliverable, not having a plan B is like not having a plan at all.”
Mr Hammond will chide Conservative party members who told polling organisation YouGov they were prepared to see the break-up of the UK if it was the price to pay for securing Brexit, saying he would fight to defend the union.
A YouGov poll of Tory members found that almost two-thirds would be willing to allow Scotland to leave the UK in order to see Brexit take place. Scots voted to stay in the EU in the 2016 Brexit referendum.
Scottish Tory leader Ruth Davidson leader told the BBC: “I think there are a number of people within the Conservative party who need to take a long, hard look at themselves.”
Mr Hammond is also due to warn that if Britain left the EU without an agreement, the damage would consume the more than £15bn of “fiscal headroom” built into his plans that would otherwise be available for tax cuts or more public spending.
Meanwhile, Mr Hammond is locked in an acrimonious dispute with Mrs May over the outgoing prime minister’s plan to announce a three-year spending spree for English schools costed at an additional £9bn-a-year by the Treasury.
The chancellor met Mrs May for talks on Tuesday and officials said a compromise might yet be found where he agreed to extra spending for one year only.
Allies of Mrs May said the extra cost would be about £7bn, but Mr Hammond is still reluctant to make big spending commitments outside this summer’s spending review, which will set budgets for all government departments.
Mrs May, who is due to step down as prime minister next month, wants to announce the schools package as part of her political legacy.