Philip Hammond has delivered a stinging public rebuke to both Conservative leadership candidates, warning them to “stop and think” before engaging in a “bidding war” of tax cuts and spending pledges.

The chancellor is among those senior Tory figures who fear that the contest – which has seen both Boris Johnson and Jeremy Hunt promise tax reductions and spending increases, while openly contemplating a no-deal Brexit – risks undermining his party’s reputation for economic competence.

Just a few minutes before Hunt was due to set out plans for bailing out farmers and fishing fleets in the event of a no-deal Brexit on Monday, Hammond tweeted a warning that the “fiscal firepower” he set aside in the spring statement would be wiped out if the UK left the EU without a deal.

Philip Hammond (@PhilipHammondUK) The “fiscal firepower” we have built up in case of a No-Deal Brexit will only be available for extra spending if we leave with an orderly transition. If not, it will all be needed to plug the hole a No Deal Brexit will make in the public finances.

Later, the chancellor, who has not endorsed either candidate, told the BBC: “There is always a temptation to sort of get into a bidding war about spending more and cutting taxes.

“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 and our hospitals and our police, and delivering a bigger burden of debt to our children and our grandchildren.

“I don’t think either of the candidates would want to do that, that is not what the Tory party is about, but we just need to sometimes stop and think about what we’re doing.”

Johnson and Hunt have been vying to set out the toughest Brexit stance, with both insisting they would be prepared to go ahead with a no-deal Brexit if necessary. But the pair have also each made a string of lavish spending pledges.

Hunt promised on Monday to earmark £6bn of additional government spending on emergency funds for the fishing and farming industries and help for small businesses in the event of a no-deal Brexit. He has also pledged to cut corporation tax and increase defence spending by 25% over the next five years.

Johnson, still the frontrunner to become prime minister despite Hunt gaining ground, said at the weekend he would spend about £25bn of “fiscal headroom” built up by the chancellor in the public finances to fund his plans, which include increasing the higher-rate tax threshold from £50,000 to £80,000.

But Hammond warned: “That money would be available if we have a smooth Brexit with a transition period in an orderly way. But that isn’t a pot of money sitting in the Treasury, it’s actually more borrowing without breaching the government’s borrowing limits.”

Hunt was challenged over Hammond’s warning, after delivering a speech in Westminster about his plans for emergency no-deal spending, which he acknowledged would represent “one of the largest fiscal and regulatory stimuli the country has seen in decades”.

“I am the cabinet minister who is in a government who has had to make the most painful cuts in public spending, across public services, where all of us felt the pain of what was happening very personally,” he said. “We took those painful decisions. We put the economy back on its feet. And so we will never throw that fiscal responsibility away, because it’s essential for our prosperity.

“But as a result of that, we have built up headroom, which makes it possible to make the commitments I am making today whilst sticking to our plans to reduce the deficit and reduce our national debt as a proportion of GDP.”

That stood in flat contradiction to Hammond’s insistence that the headroom would be wiped out by a no-deal Brexit, which the Treasury expects to hit economic growth and thus tax revenues.

Hunt added: “When you face an economic shock, it is just basic economics that you find support for the industries that are affected. It is temporary support, but it allows them to change their business models – to adapt.”

The necessity of tackling the deficit formed the centrepiece of the Conservatives’ economic pitch in the 2010 and 2015 general elections, and was one of their key attack lines against Labour.

Paul Johnson, the director of tax thinktank the Institute for Fiscal Studies (IFS), said: “This whole debate seems to be taking place in a complete vacuum. It is plausible, of course it’s plausible, to say, ‘Look, we want a big fiscal expansion,’ but it would be nice to know how long for, what level of debt and deficit are considered acceptable, and how it will eventually be unwound.”

Even before Monday’s latest spending pledges, the IFS had warned that Hunt’s spending plans would “amplify the long-run challenges facing the UK public finances”.

Anna Soubry, the former Conservative business minister who left to join Change UK – which she now leads – said: “The Conservatives were once proud to be the party of business, for business, and both candidates are not just trashing that reputation but have done so whilst in government.”

UK government borrowing is currently 1.2% of GDP. The £26.6bn represents a rise to about 2% of GDP – a level targeted by Hammond. While the chancellor has previously said the funds could be used under an orderly Brexit to end austerity, the Tories committed in their manifesto to remove the deficit entirely by the mid-2020s – two targets viewed as incompatible by many economists.

Hunt was setting out more details of his “10-point plan” for a no-deal Brexit at the Policy Exchange thinktank in Westminster. He said he would seek to begin exploratory discussions with EU leaders, and make a decision by 30 September on whether a better deal was possible.

If not, he promised to “focus the whole country’s attention on no-deal preparations”.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Kirsty Blackman, the SNP’s economic spokeswoman, said that by openly contemplating a no-deal Brexit, Hunt and Johnson had become “the Thelma and Louise of Brexit”. “It beggars belief that both are prepared to drive the UK economy off a Brexit cliff-edge, regardless of the catastrophic consequences for the economy and people’s jobs.”