The cabinet has decided to “ramp up” preparations for a no-deal Brexit amid uncertainty over the fate of Theresa May’s proposed EU exit deal.
It has approved £2bn to help if the PM’s deal is rejected and the UK leaves on 29 March without an overall deal.
Letters will be sent to 140,000 firms updating them on what they should do while 3,500 troops will be put on standby to help government departments.
Lib Dem leader Sir Vince Cable said it amounted to “psychological warfare”.
With 101 days left until Brexit and many MPs still opposed to the government’s withdrawal agreement, which MPs will vote on in mid-January, ministers met for a longer-than-normal two and a half hour meeting.
They agreed that businesses should activate their own ‘no deal’ contingency plans, as they think appropriate.
Updated Revenue and Customs information packs will be sent to firms later this week, setting out what changes could be needed at the border.
Separately, Defence Secretary Gavin Williamson has told MPs that 3,500 military personnel, including logisticians and engineers as well as infantry units, were ready to be deployed if needed.
About 10% of the force would be reservists who will receive their call up papers in the middle of January so that if needed they would be ready in March.
Brexit Secretary Stephen Barclay said the cabinet had agreed that “preparing for a no deal will be an operational priority within government but our overall priority is to secure a deal”.
He said no-deal planning “needs to be much more of a priority for businesses” and there would be a “significant increase” in the guidance issued to them over the next 14 weeks, as Brexit day approaches.
E-mails will be sent out to 80,000 of those businesses most like to be affected over the next few days.
In the autumn of 2017, The Treasury earmarked £3bn for ‘no deal’ planning.
In March, Chancellor Philip Hammond said half of that had been allocated to 20 government departments, with the Home Office, transport, the environment and business among the largest recipients.
At Tuesday’s cabinet meeting ministers approved £2bn to go to departments for the 2019/20 year, with the priority areas being borders, security and international trade.
Health Secretary Matt Hancock has already ordered full “no deal” planning across the National Health Service, he told the BBC’s Newsnight on Monday.
But Guy Verhofstadt, the European Parliament’s Brexit negotiator, criticised UK ministers, who he said were “glorifying” the prospect of leaving without a comprehensive deal in the hope individual agreements could be reached in areas like transport and livestock movements.
And Labour said a no-deal exit was “not viable” and it would work with other parties to stop it.
“It is testament to the prime minister’s failure in these negotiations that the government is now spending billions of pounds of taxpayers’ money to prepare for a no-deal Brexit that is rejected by Parliament and many of those sat around the Cabinet table,” said shadow Brexit minister Jenny Chapman.
And the Lib Dems, who are campaigning for another referendum, said the government was “attempting to scare” MPs, businesses and the public with the threat of a no-deal.
“Theresa May is irresponsibly trying to run down the clock so that the only option is to support her discredited deal,” Sir Vince Cable said.
Meanwhile, Jeremy Corbyn is under pressure to push for a further vote of no-confidence in the government as a whole.
On Monday night, the Labour leader tabled a motion calling on MPs to declare they have no confidence in the prime minister because she failed to have a vote on her Brexit deal straight away.
No 10 has refused to make time for the motion and Commons Speaker John Bercow confirmed on Tuesday that there were under no obligation to do so.
Other parties – the SNP, Lib Dems, Plaid Cymru and the Greens – have called on Mr Corbyn to push for a no-confidence vote against the government as a whole.
Unlike a vote aimed at the prime minister, the government would have to allow a vote on this motion and, if successful, it could force a general election.
Labour’s shadow housing secretary, John Healey, told BBC Radio 4’s Today programme on Tuesday that tabling a no-confidence motion against the government was “a question of when, not if”.
However, Nigel Dodds, deputy leader of Northern Ireland’s DUP, whose votes the Conservative government has relied on in big votes since the June 2017 election, dismissed Mr Corbyn’s move as “parliamentary antics”.
Mrs May also appeared to have the support of pro-Brexit backbench critics who last week failed in a bid to oust her as Tory leader.
One of them, Jacob Rees-Mogg, said he would never vote against Mrs May or a Conservative government and suggested the PM was “at greater risk” from Tory MPs who wanted to remain in the EU than Eurosceptics.
“I had my vote of no confidence in her and I lost. I am not going to repeat the exercise,” he told Today.
On Tuesday, the Daily Telegraph published a letter by 53 business leaders, including ex-Sainsbury’s boss Justin King and Glastonbury Festival founder Michael Eavis, calling on the PM to “take her deal to the British people”.
They said last week’s rebellion by her own MPs “underlines the impossibility of resuscitating it”.
The BBC understands Mrs May is planning to use the Commons vote on her Brexit deal in the middle of January as a “moment of reckoning” for Parliament.
Sources have told the BBC that Downing Street will not stand in the way of MPs who seek to amend the government’s motion on the Brexit deal to put forward potential alternatives.
The prime minister’s Brexit deal sets out the terms of Britain’s exit from the EU – on 29 March 2019 – and includes a declaration on the outline of the future relations between the UK and the EU.
But the deal only comes into force if both the UK and European parliaments approve it.