Tax cuts and pension increases are now extremely unlikely in October’s Budget as the Government shifts its focus towards a no-deal Brexit, the Irish Independent understands.

While Finance Minister Paschal Donohoe is pursuing a ‘twin-track’ approach to his budget planning, sources say the emphasis is now firmly on the worst-case scenario.

Mr Donohoe had ordered officials to prepare one Budget based on the current ‘central scenario’, which assumes a Brexit deal will be reached before October 8.

However, his department’s resources are now being firmly redirected towards the “alternative Budget” which caters for a disorderly Brexit.

“It can’t be stated publicly yet but ‘no deal’ will become the central scenario at some stage in the coming weeks,” a source said.

A final decision to shift the budgetary planning exclusively to the no-deal scenario could be made in early September. This means ministers will have to seriously curtail their demands as any available funds will be used to cushion the impact of Brexit.

Mr Donohoe expects to have around €2.8bn for new budgetary measures in 2020 – but €2.1bn of this has already been pre-committed for public sector pay increases, the National Broadband Plan and the Children’s Hospital.

He had hoped to run a small surplus next year, but under a no-deal scenario will allow the country’s book to go back into the red.

Under a disorderly Brexit, the Government will target a deficit in the region of 0.5pc to 1.5pc. This will amount to a negative swing of about €6bn in the country’s fortunes.

“If we’re going to borrow money again then the question will be where do we spend it. It will have to be used for ‘industry stabilisers’, especially in areas like agriculture,” a source said.

Government sources told the Irish Independent the situation will be bad, but argued the “doomsday mongering in the British press” is not accurate.

“There will be a couple of tough years but we’ll get through it,” the source said.

Fianna Fáil has already indicated it will not support any income tax cuts if the UK remains on course to crash out of the EU on October 31.

Meanwhile, US Speaker of the House Nancy Pelosi has said she will help block the White House offering the UK a trade deal after a disorderly Brexit.

On a visit to London earlier this week, US National Security Adviser John Bolton said the UK would be “front of the trade queue” for a new trade agreement after Brexit.

However, Ms Pelosi said the Good Friday Agreement must be respected. She described the 1998 agreement as “the bedrock of peace in Northern Ireland and as a beacon of hope for the entire world”.

“After centuries of conflict and bloodshed, the world has witnessed a miracle of reconciliation and progress made possible because of this transformative accord,” she said.

She addressed the Dáil and travelled to the Border region earlier this year.

In her statement, Ms Pelosi said: “Whatever form it takes, Brexit cannot be allowed to imperil the Good Friday Agreement, including the seamless Border between the Irish Republic and Northern Ireland, especially now, as the first generation born into the hope of Good Friday 21 years ago comes into adulthood. We cannot go back.

“If Brexit undermines the Good Friday accord, there will be no chance of a US-UK trade agreement passing the Congress.

“The peace of the Good Friday Agreement is treasured by the American people and will be fiercely defended on a bicameral and bipartisan basis in the United States Congress,” Ms Pelosi said.

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