The UK will face “chaos” unless it is properly prepared for all potential Brexit outcomes, Chancellor Philip Hammond said after he used his Budget to set aside a £3 billion war chest to cope with leaving the European Union.

Mr Hammond said Brexit preparations were “not an optional piece of expenditure” and it was an “absolute obligation” to be ready for “all foreseeable outcomes” of the talks with Brussels.

The Chancellor had been under pressure from Eurosceptics to make funds available to prepare for a “no deal” outcome, to show Brussels the UK is serious about its threat to walk away from talks if there is not a satisfactory offer on the table.

The £3 billion set aside in the Budget comes on top of £700 million already announced and could be increased further if required, Mr Hammond said.

The money will be used to improve the abilities of customs and border staff to implement new arrangements for goods and people arriving in the UK after leaving the EU and its single market and customs union.

Money will also be spent by the Department for Environment, Food and Rural Affairs to monitor and control produce and livestock travelling into the UK from the EU.

Mr Hammond told LBC Radio: “What I said yesterday is £3 billion is the amount we estimate we will need, and that’s based on the initial estimates we have received from departments, but if we need more we will find more.

“This is not an optional piece of expenditure, we have to do this to be prepared for when we leave the European Union. We don’t want to see chaos at our ports or at our airports because we haven’t prepared for the new arrangements that we will have in place.”

On Sky News Mr Hammond said: “We need to spend money on preparing for our exit from the European Union. Things are going to be different after we leave the European Union.

“We are going to need new arrangements and facilities at the border, we are going to need new computer systems for clearing goods through customs and so on.

“We have to make these arrangements and these investments to make sure that things are operating smoothly, that trade and business is not disrupted.

“These are sensible investments to make and we have to be prepared for a range of possible outcomes from these negotiations.”

He added: “When we know that we are going to be changing our relationship, changing the way our trading patterns with the European Union works, of course it makes sense to invest for that in order to protect Britain’s jobs, British businesses and prosperity in the future.

“It’s an absolute obligation on the Government to prepare for all the reasonably foreseeable outcomes that could come out of these negotiations.”