The chancellor is to challenge the remaining Tory leadership contenders to lay out their “Plan B” if their Brexit proposals falter when one of them becomes prime minister.
Philip Hammond will also hint a second referendum could be needed to break the current deadlock over the UK’s departure from the EU, scheduled for 31 October.
In a speech in the City of London, Mr Hammond, who has not declared who he is backing, will claim a no-deal Brexit could hit the public finances, risk the break-up of the UK and damage the economy.
And he will say £26.6bn of “fiscal headroom” – which could potentially be used to increase spending or cut taxes – would be used up by a no-deal Brexit.
Parliament has already shown it will not allow a no-deal Brexit and has rejected Theresa May’s Withdrawal Agreement, Mr Hammond will stress.
He will 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 re-opens the Withdrawal Agreement.”
© Sky News Screen Grab The final four Conservative leadership candidates
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 in his Mansion House speech.
Mr Hammond will call for the leadership contenders – who are now down to just four – Boris Johnson, Jeremy Hunt, Michael Gove and Sajid Javid – to be “honest with the public”.
© Provided by Independent Digital News & Media Limited Conservative Party leadership contenders engage in a live television debate (AFP/Getty Images)
And he will 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.”
It would also risk a general election “that could put Jeremy Corbyn in Downing Street”, he will add.
In a hint at the possibility of a second referendum on Brexit, 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. “