Philip Hammond confirms he will borrow more and look at tax changes in ‘no deal’

Philip Hammond has confirmed the government would be forced to borrow billions more and consider tax changes to counter the economic impact of no deal.

Appearing before the Treasury Select Committee on Wednesday, the Chancellor said the onus would be on the government to keep blood in the veins of the economy as the Bank of England would be severely restricted in its actions.

With the risk of inflation spiralling, the Bank would be forced to tighten monetary policy, leaving it to the Treasury to borrow an additional £15billion already earmarked as buffer fund.

The UK’s tax system would also be examined, meaning Hammond may dramatically cut business tax in order to pull in investment – a move he has repeatedly hinted at.

Hammond also admitted the economic reports produced by the government and the Bank – which both predicted smaller economic growth compared to the UK staying in the EU – did not take into account the levers he would pull in such a situation.

When challenged over the government’s response to the UK leaving the EU without a deal, Hammond said: “It’s implausible that in a no deal scenario the government wouldn’t do anything.”

After setting out a possible collapse in the value of the pound and a rise in inflation, Hammond added: “The Bank's normal monetary response to that would have to be to tighten monetary policy not loosen it. So I suspect that in that scenario the Bank of England would be looking firmly at the Treasury to respond through a fiscal policy response.”

Labour MP Alison McGovern was frustrated the analyses given to the committee since Theresa May concluded her negotiations on the withdrawal deal took these moves into consideration.

"You’re describing a situation that none of these reports that we’ve been provided with in order to advise our colleagues describe. We have been put in a slightly invidious position as a committee," she said.

Hammond admitted one of the reasons he was urging MPs to support May's deal is that the country risked staying “mired” in the Brexit debate.

“We have to move on as a nation,” he said.

However, the Chancellor then added: “If the only proposal on the table was no deal exit which would cost us nearly 10% of our GDP according to this modelling I would take a different view.”

Morning Wire understands from sources close to the Chancellor that this was not a coded hint at support for a second referendum, and Hammond opposes another Brexit vote.