Hammond says Tory leadership candidates must 'be honest' over spending plans - BBC News
The chancellor says pledges from the Tory leadership hopefuls "greatly exceed" the Treasury's coffers.
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The chancellor has called on Tory leadership candidates to "stop and think" about their spending promises.

Both Jeremy Hunt and Boris Johnson have announced a raft of policies during the contest, including cutting taxes and increasing spending on public services.

But Philip Hammond said they needed to "be honest" as the policies "greatly exceed" the Treasury's coffers.

He also said available money would be needed to support the UK economy in the case of a no-deal Brexit.

Asked by BBC political editor Laura Kuenssberg if the candidates were being honest with the electorate, he said: "I think they need to be very careful about setting out these ambitions and being clear about the consequences of them."

The warning comes after Mr Hunt said he would decide by the end of September whether there was a "realistic chance" of reaching a new deal with the EU were he to become PM.

The foreign secretary said he would deliver a provisional "no-deal Brexit budget" in early September, but abandon talks at the end of the month if there was no "immediate prospect" of progress - instead moving to a no-deal footing.

His rival Boris Johnson has vowed to leave "come what may" by 31 October.

Speaking to reporters on Monday, Mr Johnson said it was important to have a "hard deadline" for leaving, adding that previous no-deal preparations had "sagged back down" after exit dates were not met.

The Conservative Party's 160,000 members will begin voting next week and Theresa May's successor is expected to be announced on 23 July.

Mr Hammond said the Treasury had "built up fiscal headroom to protect against the cost of a no-deal Brexit" and that money could be released "if we have a smooth Brexit with a transition period in an orderly way".

But he said the current proposals on the table from Mr Hunt and Mr Johnson would already require increased borrowing beyond the government cap, or spending cuts or tax rises elsewhere - even without a no-deal Brexit-shaped "hole" in the public finances.

Jeremy Hunt and Boris Johnson have been busy spraying around hypothetical cash - whether on defence, on care for the elderly, on schools, for more police, the list goes on.

It is not politically surprising that they both want to signal they would turn on the spending taps a bit after a long, long period of cuts. But one of their erstwhile colleagues seems to have had enough.

After making some carefully crafted warnings in the last couple of weeks, Chancellor Philip Hammond has tried to call a halt, telling the BBC that both of the candidates have to resist the temptation of a bidding war, worrying that the party's reputation is at risk too.

Mr Hammond told me the candidates needed to "stop and think". And that by his calculation, both of the candidates' plans "greatly exceeds" the amount of wriggle room they will inherit from No 11 if they are lucky enough to be the one that moves in next door.

Mr Hammond also said the headroom wasn't "a pot of money sitting in the Treasury", but a way of borrowing more without breaching government limits.

"Whether it is a leadership competition or a general election, there is always a temptation to get into a bidding war about spending more and cutting taxes," he said.

"But you can't do both, and if we're not careful, all we end up doing is borrowing more, spending more on interest, instead of on our schools, hospitals and our police, and delivering a bigger burden of debt to our children and grandchildren."

He said the candidates' policies were "sensible and interesting ideas", but said the government had "built up a reputation for fiscal responsibility... and it is very important we don't throw that away".

"We have to live within our means and people have to be honest about the consequences of either spending more money or of cutting taxes that will have implications for borrowing or spending elsewhere," he added.

Cabinet Office Minister David Lidington has also warned the candidates about their spending promises, saying they had to "raise the money honestly from somewhere".

The de-facto deputy prime minister said: "While in a short term crisis you can ease up on the borrowing, money borrowed has to be repaid by the next generation with interest - so you shouldn't take on extra borrowing lightly, nor should we be wanting to impose more taxes on people already working very hard.

He said the "stewardship" of Mr Hammond meant "money is available" to "cushion the impact" of a no-deal Brexit.

But, he added: "I don't think any of us should pretend that no-deal would be easy even with the most meticulous and thorough planning."

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Mr Hunt has said he wants to negotiate a new deal with the EU and would be building a team to create an "alternative exit deal" to be published by the end of August.

He would then engage with other EU leaders, but keep up preparations at home for a no-deal Brexit.

But BBC political editor Laura Kuenssberg said the timeline Mr Hunt was setting out was very tight - especially given the notice the government's fiscal watchdog, the OBR, usually needs to prepare for a Budget.

Earlier, one of Mr Johnson's leading backers, Health Secretary Matt Hancock, told the Times the days of public sector "pay freezes" under Theresa May and David Cameron would be over if Mr Johnson was elected.

But during a campaign visit in Kent on Monday, Mr Johnson declined to make a detailed pledge on public sector pay, saying only that remuneration should be "decent".

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A no-deal exit on 31 October remains the default position in UK law after MPs rejected the deal Mrs May had agreed with Brussels three times.

If that does happen, the UK will automatically begin trading with the EU under the basic World Trade Organization (WTO) rules.

Under these rules, the tariffs - the taxes on imported and exported goods - will be different to what the UK currently trades under.