In a sign that divisions over Europe have heightened tensions in the Conservatives, the former party leader stormed out of his job, saying he thought the cuts to welfare for disabled people known as personal independence payments (PIP) were a “compromise too far”.
Duncan Smith, who is campaigning to leave the EU in opposition to Downing Street, said he had too often felt under pressure to make huge welfare savings before a budget in a stinging critique of George Osborne’s entire approach to reducing the deficit.
In a direct attack on Osborne and a blow to the chancellor’s hopes of becoming the next Tory leader, Duncan Smith said the disability cuts were defensible in narrow terms of deficit reduction but not “in the way they were placed in a budget that benefits higher earning taxpayers”.
He said he was stepping down because Osborne’s cuts were for self-imposed political reasons rather than in the national economic interest.
“I am unable to watch passively while certain policies are enacted in order to meet the fiscal self-imposed restraints that I believe are more and more perceived as distinctly political rather than in the national economic interest,” Duncan Smith wrote in a resignation letter to Cameron.
“Too often my team and I will have been pressured in the immediate run-up to a budget or fiscal event to deliver yet more reductions to the working age benefit bill. There has been too much emphasis on money saving exercises and not enough awareness from the Treasury, in particular, that the government’s vision of a new welfare-to-work system could not repeatedly be salami-sliced.”
Downing Street immediately attempted to portray the Duncan Smith’s resignation as consequence of the cabinet minister’s strong opposition to Cameron over Europe.
Cameron replied to his letter saying he was “puzzled and disappointed” by the cabinet minister’s decision to resign, saying the disability benefit cuts had been “collectively agreed” between Duncan Smith, No 10 and the Treasury before being announced a week ago.
The resignation leaves a hole in the Department of Work and Pensions that Downing Street will want to fill with a pro-EU loyalist. There had been talk inside DWP that Duncan Smith would be reshuffled after the referendum and that Matt Hancock – Osborne’s own protege – would replace him, although such a move could irritate out campaigners.
“There were discussions at the top level and we had decided this,” said a senior government source, who argued that Duncan Smith had – only on Friday – written a “dear colleague” letter to MPs defending the policy.
It is clear that Downing Street and the Treasury have been irritated by Duncan Smith’s interventions over the EU, not least his dismissal of government publications as “dodgy dossiers”. The work and pensions secretary is known to have been unhappy about his officials being cut out of policy discussions related to the EU referendum.
But sources close to Duncan Smith said he had longstanding concerns about the government’s approach to welfare and was particularly unhappy with the “arbitrary” promise to cut £12bn from the welfare budget before the election.
There was also irritation that the Treasury had sought to paint the disability benefit cuts as a DWP policy and not a budget measure approved by Osborne, saving the Treasury £4.5bn over the course of this parliament.
Osborne has long been seen as Cameron’s successor but the growing questions over the budget will remind backbenchers of the notorious “omnishambles” of 2012, when he was forced to reverse a series of planned stealth taxes, on everything from pasties to caravans – and was criticised for cutting the 50p top rate of tax, benefiting the highest earners.
He is seen increasingly by Tory backbenchers as having made too many unforced political errors, including having to reverse plans to cut tax credits, welcoming Google’s underwhelming tax deal with the UK, backtracking on pension reforms, and unsuccessfully trying to bring in Sunday trading.
Some of Osborne’s Eurosceptic colleagues argue that he has been so focused on managing what they deride as “Project Fear” – the campaign to keep Britain in the EU – that he failed to devote enough attention to laying the political groundwork for his budget.
On Friday night, Labour leader Jeremy Corbyn called for Osborne to resign as well, saying the chancellor has “lost the credibility to manage the economy in the interests of the majority of our people”.
“The chancellor has failed the British people. He should follow the honourable course taken by Iain Duncan Smith and resign,” he said.
Duncan Smith’s resignation comes in the context of his Euroscepticism in opposition to Downing Street but also longstanding bad political blood with Osborne.
The senior cabinet minister’s resignation letter went wider than a rejection of the disability benefit cuts into a stinging critique of the Treasury’s zeal for welfare reductions for the purpose of saving money, dealing a blow to Osborne’s arguments that they are necessary to bring down Britain’s national debt.
The cuts to PIP were announced by the Department of Work and Pensions a week ago but confirmed in Osborne’s budget and defended by Downing Street until Friday.
Downing Street initially said it “remained committed” to the changes, but at a press conference in Brussels, Cameron suggested he was prepared to soften the cuts.
Asked by the Guardian about concerns among his MPs and disability charities, the prime minister said: “A number of reviews have been done, a lot of work has been done and that is why these proposals have been put forward. As the chancellor said, but I will repeat, we will be discussing this with disability charities and others and make sure we get this right.”
The Treasury then executed a full U-turn, with a government source saying: “This is going to be kicked into the long grass. We need to take time and get reforms right, and that will mean looking again at these proposals.
“We are not wedded to specific sums … it’s not an integral part of the budget.”
The pause in the plans is a humiliating blow for the chancellor, on top of Duncan Smith’s resignation, as Osborne had hoped to use his eighth budget on Wednesday to burnish his credentials for the Conservative leadership.
The Treasury stressed the figures included in the budget were the DWP’s work; but DWP insiders had complained that they were bounced into publishing the proposals without the time to build support.
A significant number of backbench Conservatives have now turned their fire on Osborne over what they see as the toxic politics of the budget, which juxtaposed the PIP cuts with tax giveaways for businesses and higher earners.
These include Sarah Wollaston, the chair of the Commons health committee and a former GP, who tweeted that the government would “never meet approval for change that would reduce entitlement to PIP at the same time as raising the higher rate tax threshold”. David Burrowes, the Tory MP for Enfield Southgate, urged the government to “press pause”.
Amid attempts by the Treasury to distance itself from the PIP cuts, Owen Smith, Labour’s shadow work and pensions secretary, said: “It is ludicrous for the Tories to pretend that this was anything other than a major part of Wednesday’s budget.
“If the Tories are now postponing or cancelling these cruel cuts altogether it is a humiliating climbdown for George Osborne, although it will come as an incredibly welcome reprieve for hundreds of thousands of disabled people who were due to be affected.”
The Institute for Fiscal Studies said the cuts, which help people pay for the costs of living with a disability, would hit 370,000 people, with an average loss of £3,500 a year.
Osborne insisted on Friday night that the government would “protect the most vulnerable” and ensure that it got the proposals “absolutely right”. But there were rumblings among Conservative backbenchers that the anger unleashed by the disability cuts had won new converts to the “Anything But George” campaign that is seeking an alternative to Osborne as a potential future leader.
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