CHANCELLOR Philip Hammond has signalled that a no-deal Brexit would lead to departmental cuts as UK ministers prioritised spending in areas that were “immediately critical for the well-being of the citizens of the United Kingdom”.

His remarks came as it emerged Whitehall has dubbed its no-deal contingency planning “Operation Yellowhammer”.

During a visit to Scotland, Mr Hammond - asked about a business leaders’ warning that failure to get an agreement on Britain’s withdrawal from the EU would be “catastrophic” - told The Herald: “Well, first of all, they should be reassured about Operation Yellowhammer; that we have a detailed contingency planning structure in place...because we have to plan for all possible eventualities.”

As Dominic Raab, the Brexit Secretary, met Michel Barnier, the EU’s chief negotiator, in Brussels, the Chancellor revealed he would be in Austria today to try to get his European counterparts to pressure Mr Barnier to accept the Chequers Plan, which earlier this week he supposedly branded “dead”.

Mr Hammond insisted that no-deal was neither the preferred nor the expected outcome of the Brussels talks and said: "I'll be going to Vienna tomorrow to meet with my European counterparts again, to put the case for the Chequers Plan and…to persuade them to put pressure on the European Commission to engage with us on negotiations around it.”

Earlier, John Glen, the Treasury Minister, inadvertently had a document snapped by a waiting photographer in Downing Street, which revealed the no-deal contingency planning was internally named as “Operation Yellowhammer” and in such a scenario a special contingency planning unit would want ministers to focus on "internal prioritisation"; Whitehallspeak for cuts.

The document said: "Departments should be raising Yellowhammer costs through the normal channels; through their spending teams for in-year pressures and in their bids for 19/20 Brexit allocations for spending that year. Their first call should be internal prioritisation."

Questioned about Yellowhammer, the Chancellor told The Herald: “Well clearly, if we find ourselves in a no-deal situation, we will need to review where we focus Government effort, where we prioritise.

"And we will need to prioritise areas that will be, in the short term, immediately critical for the well-being of the citizens of the United Kingdom; that will be our number one priority.”

He went on: "But look, keep this in perspective; Government does contingency planning all the time, for all sorts of scenarios. We plan for strikes that never happen, we plan for natural disasters that don't occur. It's part of what Government does.

“It's very important that the Government does have robust contingency planning so that if an event occurs, we have a plan in the locker, that we can deploy, that can allow us to respond to it."