Philip Hammond at the Treasury select committee: ‘We have to be prepared for a ‘no deal’ scenario unless or until we have clear evidence that is not where we will end up’ © PA

UK chancellor Philip Hammond has said he will wait until the last minute before releasing large amounts of money to fund contingency plans for Britain leaving the EU without a Brexit deal.

The chancellor said on Wednesday that the Treasury was already planning for the possibility of the UK leaving the EU with a “hard customs border” and no co-operation on data sharing as a result of “a bad-tempered breakdown in negotiations”.

“We have to be prepared for a ‘no deal’ scenario unless or until we have clear evidence that is not where we will end up,” he said.

But Mr Hammond rejected calls from some Tory MPs to significantly ramp up contingency spending before talks had irreparably broken down, saying it would be wrong to do so as “a demonstration point”.

“I don’t believe we should be making potentially nugatory spending until we need to do so,” he told MPs on the Commons Treasury select committee.

The Treasury has a total of £12bn set aside in contingency reserves for 2017-18 and 2018-19, equal to 1.6 per cent of total departmental spending. In the past, such contingency reserves have been used in response to unanticipated events, such as extreme weather events or extra demands on the National Health Service.

Mr Hammond said the Treasury has already released £250m from the current reserves to help departments carry out early limited preparations for a “no deal” Brexit scenario. The Treasury has said the funds are earmarked for the Department for Environment, Food & Rural Affairs, the Home Office, HM Revenue & Customs and the Department for Transport, mainly to prepare for the possibility of new border controls.

But the chancellor made clear on Wednesday that the Treasury would not release additional money until the last possible moment, saying it is currently working with other government departments to identify when the “decision point” would be for funding specific contingency projects.

Mr Hammond told MPs the government would only plan for “realistic” worst-case scenarios. For example, he said there was a “theoretical” risk that air traffic between Britain and the rest of Europe could be suspended when the UK leaves the bloc in March 2019, but added it was so unlikely that the Treasury was not drawing up contingency plans for such an outcome.

He insisted that the Treasury would ensure Britain had the “necessary minimum structures to operate on day one” after it leaves the EU, but admitted that all new systems would not be ready by March 2019, saying: “Definitely it won’t.”

Later on Wednesday, UK prime minister Theresa May separately told MPs in the House of Commons that “where money needs to be spent it will be spent” to prepare for a “no-deal” scenario. Mrs May said the Treasury would fund departments to make contingency plans before relevant legislation was enacted.

Additional reporting by Gemma Tetlow

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