PHILIP HAMMOND suffered a thumping slap-down from Theresa May yesterday after claiming Britain would still pay part of its £40 billion EU divorce bill WITHOUT a trade deal.

The Chancellor suggested the Government could at least hand over up to £20 billion in outstanding “obligations” to Brussels even if we crash out of the EU in March 2019.

3 Philip Hammond says Britain should pay a Brexit divorce bill even without a trade deal

He told MPs that Britain had legal obligations under the EU’s existing budget programme that runs until 2020 and welching on them would affect our international standing.

Speaking to the cross-party Treasury Select Committee he said: “I find it inconceivable that we as a nation we would be walking away from an obligation we recognise as an obligation.”

But within an hour the PM’s official spokesman insisted: “Nothing is agreed until everything is agreed – and that applies to the financial settlement.

“The position we set out is dependent on us forging that deep and special future relationship with the EU that the Prime Minister has spoken about.”

3 The Chancellor is likely to come under fire from Brexiteers

The Chancellor’s gaffe followed an ugly row with No.10 in the run-up to the Budget with one aide branding the PM economically illiterate.

Separately yesterday Mr Hammond infuriated charities by saying Britain’s low productivity was down to the high number of disabled Brits and “marginal” workers with a job.

And he risked a fresh backlash from Defence Secretary Gavin Williamson in the simmering feud over defence cuts by saying his colleague had yet to “get his head around” the complexities of the Ministry of Defence’s finances.

Theresa May’s negotiating team has agreed outline terms of a divorce bill of nearly £40 billion in a bid to break the Brexit deadlock.

3 Caroline Lucas blasted the Chancellor for his comments Credit: PA:Press Association

Roughly £20 billion represents Britain’s obligations to the EU in terms of ongoing EU programmes and pensions.

But the other half would only be paid if Theresa May secures an extension of our existing EU membership with a two-year ‘transition’ programme between 2019 and 2021.

Challenged whether the Government would still pay any money in event of a ‘No Deal’, Mr Hammond said: “There will be arguments.

“We will fight our corner vigorously where there is any scope for debate.

“But where it is clear we have an obligation we will meet that obligation.”

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He added: “I find it inconceivable that we as a nation would be walking away from an obligation that we recognised as an obligation.

“That is not a credible scenario. That is not the kind of country we are.

“Frankly it would not make us a credible partner for future international agreements.”

The Chancellor risked upsetting hard-Brexit backers by admitting the costs of getting a “less favourable” trade deal with the EU would dwarf the costs of any divorce settlement.

He said: “It is clear that the economic and fiscal consequences of getting the right deal for Britain compared to a less favourable deal for Britain over the years to come would be significantly larger than any of the sums of money that are in question in this negotiation.”