Philip Hammond has challenged Boris Johnson and Jeremy Hunt over their spending plans, saying the “fiscal firepower” built up for a no-deal Brexit will only be available if there is an “orderly transition”.
The chancellor tweeted the comments after Mr Hunt set out plans for a £6bn no-deal war chest to protect farmers and fishermen exporting to Europe.
Meanwhile, his Tory leadership rival Mr Johnson is preparing to “show the public sector some love” with higher pay awards, according to remarks by his cabinet ally Matt Hancock to The Times.
The latest pledges added to the billions of pounds’ the candidates have already said they would shell out for public services, infrastructure and tax cuts.
Mr Hammond sounded a note of caution about the impact that leaving the EU without a deal – something both men have said they are prepared to do – would have on the budget.
He said: “The ‘fiscal firepower’ we have built up in case if a no-deal Brexit will only be available for extra spending if we leave with an orderly transition.
“If not it will all be needed to plug the hole a no-deal Brexit will make in the public finances.”
Mr Johnson said on Monday that there was “about 26 million quids worth of headroom” when asked how he would pay for his plans, and that the impact of leaving the EU without a deal would be “very, very small”.
He was apparently referring to the £26.6bn room for manoeuvre pencilled in at the time of Mr Hammond’s Budget in March.
Mr Hunt also made reference to £26bn of “headroom” as he set out his plans.
That headroom is the difference between the limit Mr Hammond set for the Budget deficit next year and how big the Office for Budget Responsibility thinks it will be.
But the chancellor has also said that all the money could be soaked up in a disruptive no-deal Brexit.
The estimated size of the fiscal headroom could also be revised down because of the knock-on effect of the global economic slowdown on Britain.
Meanwhile, Paul Johnson, director of the Institute for Fiscal Studies, has also questioned the reliance on the £27bn “war chest”.
He pointed out that the figure was a one-year target “so can’t fund permanent tax cuts/spending increases” and that spending it would just mean more borrowing.