Chancellor Philip Hammond delivers his latest Budget tomorrow, but has warned that he will be forced to take an entirely different approach if the UK and the European Union fail to agree a Brexit deal.
Hammond said earlier today he would use fiscal buffers to boost the economy under a no deal scenario and "strike out in a new direction". He has previously suggested that the UK would pursue lower taxes and a reduced regulatory burden in order to lift its global competitiveness, potentially undercutting European rivals.
"If we don’t get a deal… [then] we would need to take a different approach to the future of Britain’s economy," Hammond said yesterday.
"We would need to look at a different strategy and frankly we’d need to have a new budget that set out a different strategy for the future."
He said that Office for Budget Responsibility projections, upon which today's Budget is based, assume that Britain will negotiate an "average-type free trade deal".
Speaking to Sky News, the chancellor insisted it was "extremely unlikely" that the UK would leave the EU without a deal, despite political stalemate over the Irish border.
"No one is more committed to getting a deal than me and the prime minister. This is absolutely in the best interest of the British people," he said.
However, in the event of a cliff edge, "we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction that would ensure that Britain was able to succeed whatever the circumstances we found ourselves in."
Last year Hammond told a German newspaper that the UK could move away from European-style tax and regulations if deprived of a Brexit deal. "If we are forced to be something different, then we will have to become something different," he said at the time. "We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do."
Hammond promised that he has put aside a sufficient reserve of fiscal power to allow Britain to weather any potential problems.
“If the economy as the result of a no deal Brexit, or indeed because of something else that we haven’t anticipated, needs support over the coming months and years, I have the capacity to provide that support,” he said.
City analysts have also raised the prospect of a 'deal dividend' – claiming that political agreement between the EU and UK could release spending decisions that have been put on hold during the negotiations.
Brexit-backing Tory MP Bernand Jenkin told City A.M. that "any restoration of certainty is likely to release significant investment [in the economy] which has been held off by uncertainty around Brexit."