Philip Hammond is set to warn Boris Johnson that as prime minister he may have no choice but to call a public vote on Brexit.
Theresa May’s chancellor will urge contenders for the Tory leadership crown to “be honest with the public” and set out a “plan B” for Brexit that rejects no-deal.
Underlining that the current crop of MPs will not sanction crashing out, Hammond will demand Johnson and his rivals face “immutable truths” about Brexit.
Warning of a threat to the economy and the union, Hammond will hint that a fresh referendum could be the only way of breaking the Westminster logjam.
“If the new prime minister cannot end the deadlock in parliament, then he will have to explore other democratic mechanisms to break the impasse,” he will say in a major speech in the City of London on Thursday.
“Because if he fails, his job will be on the line – and so, too, will the jobs and prosperity of millions of our fellow citizens.”
In perhaps one of his final speeches as a cabinet minister, Hammond will also point out that the Treasury’s £26.6 billion of “fiscal headroom” - which May’s successor could use to boost spending or cut taxes - would also disappear under a no-deal Brexit.
Contenders therefore need “realistic strategies” to swerve trashing the economy, he will say, adding that ministers cannot “be forced to choose between our democracy and our prosperity”.
It comes as frontrunner Johnson took another step towards Downing Street, with staunch opponent Rory Stewart knocked out of the race in the latest ballot of Conservative MPs on Wednesday.
Foreign secretary Jeremy Hunt, environment secretary Michael Gove and home secretary Sajid Javid are vying for the second spot on the members ballot.
Hammond will also use his speech to sound the alarm over the threat a no-deal Brexit poses to the union.
It comes after an eyebrow-raising YouGov poll of grassroots Tory activists found 63% would accept Scottish independence and 59% a united Ireland if the break secured Brexit.
Hammond will remind Tories that “a paramount duty of government” will be to preserve the union.
He will say “actively pursuing a no-deal Brexit” and being “willing to risk the union and our economic prosperity” risks putting “Jeremy Corbyn in Downing Street.
It is widely thought that May-ally Hammond could be demoted by the next PM.
But the chancellor signalled he could fight no-deal from the backbenches.
“I will not concede the very ground we stand on. I will fight, and fight again, to remake the case for pragmatism and, yes, for compromise in our politics – to ensure an outcome that protects the Union and the prosperity of the United Kingdom,” he will say.
He will demand that Johnson, and the other remaining candidates to replace May, face up to three “immutable truths” on Brexit: that the EU will not renegotiate withdrawal terms, parliament will reject no-deal and that, without a general election, the make-up of the Commons is fixed.
The contenders must therefore spell out what will happen if their Brexit plans falter, he will say.
“It may be that I’m wrong, and a new leader will persuade parliament to accept the deal it has already rejected, or that the European Union does a 180-degree U-turn and re-opens the Withdrawal Agreement,” he will say.
“But if not, candidates must set out what they will do.
“If your plan A is undeliverable, not having a plan B is like not having a plan at all.”
MPs will take part in another round of votes on Thursday when another leadership contender will be eliminated from the race.