Philip Hammond is set to urge the next Prime Minister to consider holding a second referendum in a bid to break the deadlock over Brexit.
In a frank intervention, the Chancellor will call on whoever succeeds Theresa May to “explore other democratic mechanisms” to end the Parliamentary gridlock.
And he will reiterate his view that MPs will torpedo any attempt by the next Conservative to go for a no-deal Brexit – a move which he says risks the break-up of the United Kingdom as well as economic catastrophe.
His comments will be seen as squarely aimed at Tory frontrunner Boris Johnson, who has vowed to take Britain out of the European Union “deal or no deal” on 31 October.
Mr Hammond will tell an audience of bankers and journalists at Mansion House that he “cannot imagine a Conservative and Unionist-led Government, actively pursuing” a no-deal Brexit.
“I will not concede the very ground we stand on,” he will warn.
“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.”
The Chancellor will say that no Tory hopeful can escape a string of “immutable truths” over the next few months, including unchanging Parliamentary arithmetic, the European Union’s refusal to reopen talks, and the work needed to avoid a hard border in Northern Ireland.
He will add: “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.
“But if I’m not, if the deal the current PM has negotiated is, in fact, the best deal possible; and Parliament continues to reject both it and no deal, then the question to the candidates is not ‘What is your plan?’; but ‘What is your plan B?’.”
‘BE HONEST’
Urging the Conservative candidates to “be honest with the public”, Mr Hammond will call on the next Prime Minister to “address the difficult trade-offs inherent in delivering Brexit” – and say Britain “cannot allow ourselves to be forced to choose between our democracy and our prosperity”.
In a clear hint that a second referendum may be needed, 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.”
Elsewhere the Chancellor will warn that the £26 billion set aside by the Treasury for a Brexit “deal dividend” at the Spring Statement would be wiped out under a no-deal Brexit – an outcome he says would leave the economy “permanently smaller”.
“So, there is a choice: either we leave with no-deal or we preserve our future fiscal space – we cannot do both,” he will say.
Mr Hammond has been increasingly vocal about the potential impacts of no-deal Brexit in recent months. In May he warned that leaving the EU without and agreement would represent a “hijacking” of the 2016 referendum result that would “knowingly” put the economy at risk.
And he has written to every Tory leadership candidate to urge them to publicly commit to he Government’s existing budget rules, which vow to keep national debt falling every year and maintain the deficit at 2% of GDP through to 2021-22.