Philip Hammond admits Brexit 'no deal' will mean less money for NHS and social care

A “no deal” Brexit will mean less money for the struggling NHS and for cash-starved social care, the Chancellor has admitted.

Philip Hammond also became the first Cabinet minister to say it was “theoretically possible” that crashing out of the EU without agreement would ground all flights.

Giving evidence to MPs, he said he did not think “anybody seriously believes that it where we will get to”, arguing an air travel deal would be struck regardless.

But he made clear the financial cost to hard-pressed public services of preparing for the Brexit talks collapsing, something Theresa May has said the Government is now doing.

“Every pound we spend on contingent preparations for a hard customs border is a pound we can't spend on the NHS, social care, education or deficit reduction,” the Chancellor said.

The warning comes just one day after the head of the NHS said the health service would be forced to make cuts without a bailout in next month's Budget.

A gloomy Mr Hammond said a “bad-tempered breakdown” in the negotiations was now a realistic “worst case scenario”- with “non-cooperation & people not acting in own economic interest”

The Chancellor confirmed he was not ready to spend billions of pounds of taxpayers' money yet on preparing for a "no deal" departure.

And he revealed he had faced down some colleagues who wanted him to start spending now in order to “send message to EU that we mean business” – but did not name any.

On Northern Ireland, the Chancellor appeared to open up the prospect of terrorists targeting new infrastructure at or near the border – despite the Prime Minister ruling out a hard border.

He acknowledged that “cameras” could be required to carry out number plate recognition for a new customs regime – that would “need protection” from Irish extremists.

Only if the UK and EU were able to agree a streamlined customs process to allow vehicles to “move freely” would we “have our answer”, he told the MPs.

The Chancellor promised "we will be ready” for a no deal Brexit, on March 30, 2017, but immediately added: “Not everything will be in place on day one.”

He also turned his fire on the EU for failing to start talks on a transitional deal, saying he was “astonished” by the approach from Brussels.

The EU has ruled out agreeing this month that “sufficient progress” has been made on the financial settlement, citizens’ rights and the Irish border, allowing trade talks to begin.

But Mr Hammond urged the EU to start “exploratory discussions” on transition, adding: “They need to think carefully about the need for speed.”

Speaking to the Commons Treasury select committee, he also admitted a “cloud of uncertainty” caused by Brexit is dragging down the UK economy, as hopes of a deal with the EU appear to fade.

Businesses and consumers were putting spending decisions on hold until they see if the negotiations in Brussels succeed or fade.

For that reason, progress in negotiations needs to come “as soon as possible" to remove the drag on growth, the Chancellor said.

The comments came after the UK was the only major economy not to see its growth forecast upgraded in an International Monetary Fund (IMF) report.

The organisation predicted growth would slow from 1.8 per cent in 2016 to 1.7 per cent this year and 1.5 per cent in 2018.