The case of 180 Iraqis who, are calling for a public inquiry after claiming they were abused by British soldiers, follows the inquiry into the death of Baha Mousa who died after being beaten by UK forces.
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The chancellor now faces the prospect of forming a minority government or calling for a snap election.
The 73-year-old said a return is unlikely "given the politicised atmosphere that seems to have afflicted our set."
Chancellor Philip Hammond said the UK will make a financial proposal to the EU in the next three-and-a-half weeks.