Philip Hammond has said that the UK will be worse off “in pure economic terms” under all possible Brexit outcomes – including the prime minister’s own deal.
Speaking on Wednesday morning, the chancellor gave strong hints the government had begun its contingency planning should it lose the vote in parliament on Theresa May’s Brexit deal negotiated with the EU.
The latest Guardian analysis suggests 94 Tory MPs have confirmed they will vote against the deal, with numbers likely to tip into three figures in the coming days.
Hammond suggested the economic hit would be mitigated if the deal was clinched, rather than the UK leaving with no deal.
Asked if all scenarios would have a cost, Hammond said: “If you look at this purely from an economic point of view, yes there will be a cost to leaving the European Union because there will be impediments to our trade.”
Hammond said the deal would “absolutely minimise those costs” and would offer political benefits of being able to sign new trade deals and having new controls over fishing waters. “The economy will be slightly smaller in the prime minister’s preferred version,” he said.
He said if the government loses the vote in parliament on 11 December, it would be in “uncharted political territory”. More than half of backbench Tory MPs who are not on the government payroll have committed to voting down the deal.
Hammond said cabinet ministers would examine the reasons why MPs had voted against the deal and then try to forge consensus. “We will then have to sit down as a cabinet and a government and decide where to go on the basis of the vote, what we’ve seen in the vote and who has voted in which way because clearly we live in a democracy, parliament is sovereign,” he said.
“If parliament makes a decision to reject the prime minister’s proposal, we will have to consider very carefully how to proceed.”
Hammond said it was clear that many Brexit scenarios did not command a majority in parliament. “What is more difficult to discern is what there is a consensus for,” he said. “We are trying to build consensus around the prime minister’s plan … if that is rejected we will have to review the options.
“We will have to look at the parliamentary arithmetic, look at what parliament has decided, and consider what is the best way to proceed.”
Hammond, a former remainer who has argued on the need to mitigate the economic costs of Brexit, suggested he was not convinced by any of the other scenarios such as a Norway-style deal.
“All of the other options have disadvantages and we have to look not only at the economy but also the need to heal a fractured nation. We will not be successful if we remain fundamentally divided and fractured on this issue.”
The analysis that the government is publishing examines the 15-year impact on the economy and is expected to echo the findings of a leaked assessment from earlier this year that showed GDP would be hit.
Hammond said the economy would continue to grow under May’s deal and the impact would be “very small” and would be “the optimum way of leaving the European Union and delivering on the result of the referendum”.
The chancellor said the analysis would show that a no-deal exit would have a much higher impact on the economy than the deal the two sides have negotiated.
“Becoming a fully independent country and trading as an independent country with the European Union introduces some level of friction in our trade,” he said. “Our commitment is to absolutely minimise that friction and we have got our European neighbours to agree, in this deal, that we will work together to do that.”
Hammond said “looking purely at the economics, remaining in the single market would give us an economic advantage”, comments that are likely to rile Brexiters in his party.
The government has been keen to stress the report, prepared by civil servants across Whitehall, constituted an analysis and not a forecast.
The chancellor said the true cost of leaving the EU would not be known until a final future relationship was negotiated with the bloc. “The precise binding legal treaty text has still got to be negotiated and until that text is negotiated and locked down, there will be an element of uncertainty,” he said.
The Labour MP Owen Smith, a supporter of the anti-Brexit Best for Britain campaign, said: “This has to be the first instance in the history of our country when the man in charge of our economy has recommended making it smaller so we have less to spend on the NHS, schools, the army or our transport infrastructure.”
The chancellor also lambasted critics of the plan, saying that no one had come up with a better one. “This is by far the best way to leave the EU, by protecting our jobs and our prosperity,” he said.
“This is our plan, we are promoting it to the British people and to our colleagues. Of course we are making contingency plans for the possibility of a no-deal Brexit. But that is not something that anybody wants to see, it is not a good outcome for the UK.”
