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Philip Hammond says UK economy will have to strike out in a "different direction" if no-deal Brexit deal

Chancellor Philip Hammond speaking to host Andrew Marr, during the BBC1 current affairs programme, The Andrew Marr Show Picture by Jeff Overs/PA
Chancellor Philip Hammond speaking to host Andrew Marr, during the BBC1 current affairs programme, The Andrew Marr Show Picture by Jeff Overs/PA Chancellor Philip Hammond speaking to host Andrew Marr, during the BBC1 current affairs programme, The Andrew Marr Show Picture by Jeff Overs/PA

Philip Hammond has warned the UK economy will have to strike out in a "different direction" if the British government is unable to agree a Brexit deal with Brussels.

On the eve of the budget, the chancellor said he would have to tear up his plans and issue a new budget if Britain leaves the EU next March without an agreement in place.

Despite Theresa May's promise at the Conservative Party conference that the era of austerity was coming to an end, Mr Hammond played down the prospects of a spending giveaway when he makes his speech to the Commons on Monday.

He said detailed departmental allocations would have to wait until the spending review next year by which time the outcome of the Brexit negotiations is expected to have become clear.

Shadow chancellor John McDonnell said he was "shocked" by Mr Hammond's remarks which, he said, showed ministers were preparing to move to a Singapore-style low-tax, low-regulation economy following a no-deal Brexit.

Mr Hammond insisted he remained confident the government would reach an agreement with Brussels but said they had to be prepared for any eventuality, including a no-deal break.

"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 told Sky News's Sophy Ridge on Sunday programme.

"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."

The chancellor acknowledged such a change would represent a "very big transition" to the way the economy operated.

"If our businesses are no longer able to trade with European Union neighbours, if their supply chains are cut off, they will have to find different markets and different ways of doing business," he told BBC1's The Andrew Marr Show.

"The economy will change. It will have to restructure itself over a period of time and that will be a fairly major transition."

Mr McDonnell told Sophy Ridge on Sunday: "Basically he seems to have accepted a no-deal Brexit and he does want us to be like Singapore, a tax haven, which will undermine our manufacturing base and, I think, put people's living standards at risk."

With Tory MPs increasingly restive over the impact of the roll-out of Universal Credit on low income families, Mr Hammond signalled he was ready to provide additional support to ease the transition to the new system.

"If we find cliff edges and difficulties, frictions in the move from the old benefits system to Universal Credit, then of course will always try to smooth those out and be pragmatic about it," he said.

The chancellor will also use the budget to set out plans for a £28.8 billion national roads fund for major routes, with a further £420 million for pothole repairs, in part-funded by ring-fencing revenues from vehicle excise duty.

He is also expected to find extra cash for defence, social care, and an extension of superfast broadband to remote rural areas as well as a temporary cut in business rates for small firms.

However, he indicated that any further loosening of the purse strings would have to wait until the outcome of the Brexit negotiations is clear.

"Once we get a good deal from the European Union and the smooth exit from the EU, we will be able to show the British people that the fruits of their hard work are now at last in sight," he told The Andrew Marr Show.

"What I will be doing is setting out a path of public spending that will take us from the spending review onwards, but the detailed allocation to different departments is something that is for next year."