Iain Duncan Smith exit over welfare cuts threatens to widen Tory split on EU vote

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David Cameron was being driven back from RAF Northolt early on Friday evening when he was told that Iain Duncan Smith, his predecessor but one as Tory leader, had resigned from the cabinet. The work and pensions secretary quit in a fury, following vicious arguments with the Treasury over cuts to benefits for the disabled, announced in the budget only two days before.

The prime minister, who had spent the day in Brussels attending yet another EU summit, had been hoping to spend a relatively trouble-free, post-budget weekend with his family. Instead he had to try to minimise the fallout from what threatened to be by far the most damaging cabinet resignation of his six years as prime minister.

As Cameron headed through the west London rush-hour traffic, he was emailed a copy of the resignation letter that had arrived at Downing Street from Duncan Smith at 5.45pm. It was no ordinary resignation letter: rather it contained deliberate, devastating attacks on the government’s entire approach to the budget deficit and the welfare bill.

Duncan Smith told Cameron that he regarded the latest cuts to benefits for the disabled as a “compromise too far”. He tore into the way decisions were too often taken by the Treasury, under chancellor George Osborne, for reasons that seemed “political rather than in the national economic interest”. Then he signed off with a sentence that Labour will be able to throw back at the Tories every day until the next election. “I hope as the government goes forward you can look again, however, at the balance of the cuts you have insisted upon and wonder if enough has been done to ensure ‘we are all in this together’.”

He was throwing Osborne’s favourite budget phrase back in his face. The clear underlying message was that decisions made by the Treasury were too often driven by cold financial calculations on the one hand, and the leadership ambitions of Osborne on the other.

Cameron rang Duncan Smith twice in the early evening before the news of the resignation was made public at 9pm, to try to talk him out of going. According to one ally of Duncan Smith, the prime minister “pleaded with him” not to go, knowing it would be a terrible blow to his government and his chancellor. He also called Osborne to discuss what to do. But Duncan Smith stood firm.

To lose such a senior minister in this way, over such a sensitive issue, was damaging enough. But the fact that it was Duncan Smith – a leading figure in the campaign to take the UK out of the EU and an advocate of welfare reforms – spelt added danger. What would it mean for a divided Tory party that was already tearing itself apart over Europe, and the ability of Cameron’s government to hold together in the runup to the EU referendum on 23 June? And what would it mean for the Tory succession, and Osborne’s chances of slipping into Cameron’s shoes and seeing off his rival for the leadership, Boris Johnson?

On budget day, three days earlier, Osborne and the Tory party had appeared largely at peace with one another. When he sat down after an hour-long speech at just after 1.30pm, Cameron slapped his chancellor on the back and Tory backbenchers cheered loudly. Osborne had been obliged to downgrade growth forecasts for next year and blamed this on a slowing of the global economy.

But despite the adjustments his budget seemed, initially at least, to give something to everyone. Despite warnings from organisations including the independent Resolution Foundation that this was not the time to deliver tax cuts to the better-off, Osborne went ahead and delivered them, raising the threshold at which the 40p tax will be paid to £45,000 – the biggest giveaway to this group of relatively well-off taxpayers since the rate was introduced nearly 30 years ago. They would be hundreds of pounds better off every year.

A person in a wheelchair
A group of Tory MPs raised alarm that benefits cuts were being forced on disabled to pay for chancellor’s tax cuts. Photograph: Alamy

But within hours a small group of Tory MPs was raising the alarm over cuts to benefits for the disabled which were to save £4bn during the lifetime of this parliament. They looked like they were being forced on the most vulnerable to pay for Osborne’s tax cuts and his effort to butter up Tory members and supporters. One former Tory minister told the Observer: “Osborne had to buy off all those Eurosceptic Tories who did not like his message that we had to stay in the EU for our economic security. So this was what we gave them.”

The Institute for Fiscal Studies estimated that the cuts would cost 370,000 disabled people an average of £3,500 a year, while the wealthier filled their wallets. With a Commons majority of just 17, such was the volume of Tory grumbling that it appeared the government might be defeated. MPs who were not admirers of Osborne began briefing that it was unacceptable and immoral and Cameron and Osborne smelled trouble. On Thursday night on BBC’s Question Time, education secretary Nicky Morgan appeared to soften the line, saying the disability cuts were only a “suggestion” and hinting that they might not come into force.

The next morning, however, Duncan Smith was, according to his allies, ordered to correct the impression given by Morgan that a U-turn was pending and to hold the line, which he duly did in a statement making clear there would be no rethink.

By mid-afternoon on Friday, Cameron had spoken with Osborne and they had agreed to drop the plan for fear of a Commons defeat. The news leaked out. Duncan Smith felt he had been stitched up and painted as the hard man, when he had in fact resisted the cuts all along and only accepted them very reluctantly and against his better judgment.

For him it was the final straw in a long-running battle with Osborne, whom he accuses of making constant attempts to “salami-slice” the welfare budget in order to cut the deficit, rather than look for cash from elsewhere. Duncan Smith has dedicated every minute since his disastrous short spell as Tory leader from 2001 to 2003 to a political comeback based on the cause of radical welfare reform, involving the creation of universal credit, which is designed to create greater work incentives for the unemployed. But he has too often found himself in opposition to a chancellor who, he believes, does not believe in his ideas or want to make them work.

Baroness Philippa Stroud, who worked with Duncan Smith for five years and is now executive director of the Centre for Social Justice (which he set up), told the BBC that Duncan Smith felt it was “not appropriate to be giving away tax incentives to the middle classes, freezing fuel duty and protecting universal benefits and pensioner benefits at the time at which you’re also making cuts to disability benefits”. Duncan Smith, she made clear, would have preferred to have found the savings from better-off pensioners.

Although Downing Street and the Treasury kicked the disability cuts into the long grass, Duncan Smith was furious when he was told by the PM on Friday that the money would still have to come from his budget. Bernard Jenkin, a Tory MP and ally of Duncan Smith, made clear that it was this realisation that persuaded him to resign. Not only did he feel he was being blamed for a plan he had resisted, but once a U-turn had been executed he was told he would still have to find the money, further undermining his universal credit plan.

On Saturday the Cameron and Osborne camps were busy trying to portray Duncan Smith’s resignation as mysterious and “puzzling” – the word used by the prime minister in his reply to the resignation letter. They said the disability cuts had originally been announced by Duncan Smith’s own department in a written ministerial statement 10 days ago, five days before the budget. “IDS was fully signed up to all this. It is a little baffling that he can now say he did not agree to it all, because he did,” said a senior government source. They said the cuts were also discussed at an 8am cabinet meeting on budget day, at which Osborne spelt out the plans, drawing no intervention or objection from the work and pensions secretary. Duncan Smith, they added, also wrote to all MPs the day after the budget to explain the measures, though in this letter he did not suggest they were set in stone.

Intriguingly, senior government sources were keen to spread the idea that Duncan Smith had planned the resignation for weeks, to free himself to commit his energy to the Brexit campaign. The clear intention by Cameron and Osborne supporters was to deprive him of any moral high ground, to puncture the idea that he quit on principle and in protest at the heartless policies of the PM and chancellor. Rather they wanted to portray the resignation as long in the planning, and driven by his anti-EU obsessions.

That counter-offensive was in full swing on Saturday. But whatever the backlash, there can be little doubt that Duncan Smith’s resignation has undermined the authority of Cameron and Osborne as they prepare to wage the most fateful campaign of their political careers. And the Brexiteers can claim that one of their biggest beasts has sacrificed his own career to defend the nation’s poor and vulnerable: a powerful storyline at a time when distrust of distant elites, whether in Westminster or Brussels, has never been higher.

Duncan Smith’s camp accused No 10 and the Treasury of attempts to “smear” him and rejected claims that he had been looking for a moment to resign for weeks as “total and utter rubbish”.

Duncan Smith is due to appear on the BBC’s Andrew Marr show and the mudslinging will no doubt continue. It has been an appalling few days for the government. Osborne delivered his eighth budget and has already had to drop a policy that was at its heart, a humiliation for him and a blow to his chances of ever becoming prime minister. If there is a winner from the events of recent days, it may well be his great rival, Boris Johnson.

It is also less than a month since Cameron announced the date of the referendum, saying he was confident the Tories could air their differences and yet still hold together as a family. One MP and close supporter of Duncan Smith said there was now no hope of that. “The government is falling apart before our eyes,” he said.

Powered by Guardian.co.ukThis article was written by Toby Helm Observer political editor, for The Observer on Saturday 19th March 2016 22.24 Europe/London

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