A rift appears to have opened up at the top of the UK Government over how much taxpayers’ money should be spent to prepare for a “no-deal” Brexit scenario.

Theresa May told MPs that her administration would spend whatever was necessary to make sure Britain was ready for leaving the EU, including the possibility of a no deal, and revealed £250 million had already been allocated from Treasury reserves for EU withdrawal preparations.

During Prime Minister's Questions, she told MPs: “Where money needs to be spent, it will be spent."

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But an hour earlier, Philip Hammond made clear funding for a no-deal scenario would not happen "until the very last moment".

The Chancellor told the Commons Treasury Committee it was not wise at this stage to spend money, which could be spent on schools and hospitals, on an outcome which might or might not happen, merely to "send a message" to the EU.

But he also told MPs the Treasury was "prepared to spend when we need to spend" on contingency plans for a no-deal outcome, including a possible "bad-tempered breakdown" in negotiations.

It emerged that at Tuesday’s Cabinet meeting tensions broke out over contingency funding in the event of a no deal with ministers engaged in a “robust” exchange.

Downing Street denied there had been a row but accepted there had been a brief discussion on the issue.

David Jones, the former Welsh Secretary, argued that billions of pounds should be set aside in November's Budget for a no-deal scenario, arguing that if this did not happen, then it would be seen as a "a sign of weakness" by EU leaders.

His Conservative colleague Jacob Rees-Mogg said the Treasury's conduct with regard to Brexit had been "incompetent bordering on the dishonest" and planning for all possible outcomes was a necessary "insurance policy".

During PMQs, Jeremy Corbyn accused the Tory Government of being in chaos and ministers were more interested in fighting amongst themselves than in solving the problems that faced them.

The Labour leader told Mrs May: "Isn't it the case that if a Prime Minister can't lead, she should leave?"

His colleague, Heidi Alexander, accused the PM of running scared; talking up a no-deal over Brexit because she was "afraid of the most right-wing, rabid elements" in the Conservative Party.

But Mrs May hit back, telling the Labour MP: "She could not be more wrong," adding she was working with the EU to negotiate a "brighter future for this country".

Later, Labour’s Chuka Umunna, speaking on behalf of Open Britain, which campaigns for closer ties with the EU, said ministers contradicted each other with such regularity on Brexit that “getting a straight answer out of them is like trying to nail jelly to the wall”.

He added: “Considering that a no-deal Brexit would be catastrophic for jobs, the economy, the NHS and just about everything else, it’s time for the Government to stop bickering like children, face up to reality and do the right thing: stop the destructive no-deal rhetoric and concentrate on creating the conditions for an agreement.”

In other developments:

*research by the leading investment bank, Rabobank, warned that Conservative plans for a hard Brexit would plunge the UK into immediate recession, costing the economy £400bn and wiping 18 per cent off GDP growth by 2030;

*business leaders criticised the PM for failing to guarantee the post-Brexit status of European Union nationals after admitting their rights could "fall away" if Britain left the bloc with no deal and

*John Bruton, the former Irish Taoiseach, said a no-deal Brexit would be "devastating" for the Northern Ireland peace process.