Chancellor to suggest that the next PM may need a second referendum

Chancellor Philip Hammond speaking in the House of Commons (Pic: Parliament)

Chancellor Philip Hammond speaking in the House of Commons (Pic: Parliament) - Credit: Parliament

The chancellor of the exchequer is expected to hint at the need for the next prime minister to consider a second referendum, saying that not having a 'plan B' for Brexit is like not having a plan at all.

He will say that there will be need for "other democratic mechanisms" in exiting the EU beyond what is already being contemplated by Tory leadership hopefuls in order to break the Brexit deadlock.

But his "plan B" has already been shot down by Theresa May, who believes "we should get on with delivering the verdict of the first one", according to a No. 10 spokesperson.

In his speech, the chancellor will warn that a no-deal Brexit could damage the economy and risk the break-up of the United Kingdom.

He will say that the £26.6 billion of "fiscal headroom" - which could potentially be used to increase spending or cut taxes - would be soaked up by a no-deal Brexit.

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Leadership favourite Boris Johnson, who increased his vote share from Tory MPs to 157 in the latest ballot, suggested that he would use the money to fund a tax cut for those earning over £50,000 - but is willing to contemplate a no-deal Brexit.

MORE: Sajid Javid dropped from Tory leadership race while Boris Johnson increases his lead

Hammond is expected to say: "I cannot imagine a Conservative and Unionist-led government, actively pursuing a no-deal Brexit, willing to risk the union and our economic prosperity."

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It would also risk a general election "that could put Jeremy Corbyn in Downing Street", he will add.

"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," he will say.

He is also expected to call on the remaining leadership contenders to start spelling out what will happen if their Brexit plans fail, in the light of parliament's refusal to pass Theresa May's deal at the same time as blocking, in principle, a no-deal Brexit.

He is expected to say: "It may be that I'm wrong, and a new leader will persuade parliament to accept the deal it has already rejected, or that the European Union does a 180-degree u-turn and reopens the Withdrawal Agreement."

But if not, candidates must set out what they will do.

"If your plan A is undeliverable, not having a plan B is like not having a plan at all," he will add.

Hammond, who has not declared who he is backing in the leadership contest, will call for the would-be premiers to be "honest with the public".

In a hint at the possibility of a second referendum, he will 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.

"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."

The relationship between May and the chancellor has deteriorated, and sources have indicated that Hammond could be prepared to resign if the outgoing prime minister embarks on a spending spree to fund projects to secure her legacy.

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