Philip Hammond has warned that the government would have to refocus its priorities if the Brexit negotiations resulted in no deal, as details emerged of a Whitehall contingency plan codenamed Operation Yellowhammer.

After Treasury minister John Glen was photographed in Downing Street with a briefing document about planning for no deal, Hammond hinted other areas of public spending would have to take a hit if the UK crashed out next March without an agreement in place.

“In no-deal circumstances we would have to refocus government priorities so that government was concentrated on the circumstances that we found ourselves,” he told the BBC, during a visit to Scotland.

The Operation Yellowhammer document, snapped by a photographer in Downing Street, revealed that Whitehall’s civil contingencies secretariat, which usually coordinates planning for emergencies such as floods, “held a two-day workshop last week to review departments’ plans, assumptions, interdependencies and next steps”.

It stressed that departments could bid for their share of the £1.5bn being made available for no-deal readiness; but in the first instance should try to pay for preparations through “internal reprioritisation”.

The Operation Yellowhammer papers. Photograph: Steve Back

Hammond’s autumn budget is due to take place against the backdrop of the final stages of negotiations in Brussels over the withdrawal agreement.

He is expected to reveal how he will fund the first tranche of the extra £20bn Theresa May has promised for the NHS by 2023; but officials are still scrambling for sources of funding that will be acceptable to Tory MPs. “We don’t have an answer at the moment on how we’re going to pay for it,” one Whitehall source said.

With the economic outlook and the outcome of the Brexit negotiations both unclear, Hammond is likely to delay large-scale tax increases or spending cuts to fund the NHS boost.

The chancellor was criticised by Brexiters last month for publishing a letter to the treasury select committee chair, Nicky Morgan, underlining the risks to economic growth and the public finances of a no-deal Brexit, just as the Brexit secretary, Dominic Raab, stressed the government’s preparedness.

As senior Conservatives, including former ministers David Davis and Boris Johnson, gear up for a concerted “chuck Chequers” campaign this autumn, in the runup to the Tory conference, Hammond is expected to continue stressing the economic risks of no deal – and indeed of their favoured alternative, a Canada-style trade deal.

Davis announced on Thursday that he would appear alongside Labour Brexiter Kate Hoey, and former Ukip leader Nigel Farage, at a rally in Bolton later this month, aimed at demonstrating public support for a cleaner break with the EU27 than the prime minister’s Chequers plan would deliver.

The European Research Group of pro-Brexit MPs is planning a series of interventions in the coming weeks to ramp up the pressure on Downing Street. One senior leaver said, “you can expect to hear a lot of noises off, from us, in the runup to conference”.

Meanwhile, the Treasury announced on Thursday that it would cancel a planned cut to national insurance contributions for the self-employed, first announced by George Osborne and due to come into effect next year.

The policy of abolishing Class II NICs had already been delayed by a year, and will now be scrapped altogether.

Treasury sources insisted the plans, which had been open for consultation, would have made the national insurance system unnecessarily complex. Under the changes, up to 3 million self-employed workers had been set to receive a tax cut of £150 a year.

But Treasury sources pointed out that 300,000 of the lowest-paid self-employed workers – those who earn less than £6,000 – were actually due to lose up to £600 a year.

However, small business groups reacted angrily on Thursday to the announcement. “The self-employed community has been let down today, missing out on a promise to reduce their tax burden. This raises serious questions once again about the government’s commitment to supporting the self-employed,” said Mike Cherry, chairman of the Federation of Small Businesses.

May’s announcement on the NHS was a rare unfunded spending pledge, from a party whose general election campaign less than a year earlier had included repeatedly claiming Labour was relying on a “magic money tree” to pay for its own promises.

Hammond and his colleagues are acutely conscious of the risks of presenting the divided Conservative party with plans for unpalatable tax increases, after separate plans for a modest increase in NICs for the self-employed had to be scrapped last year after a backbench backlash.