Why has Iain Duncan Smith decided to walk out of government now? On the surface, it appears that tensions about the way in which cuts to disability benefits were handled bubbled up into outright anger. But the context of a referendum over Britain’s position in the EU, which pits Duncan Smith against his leader David Cameron, cannot be ignored.

Cameron isn’t just “puzzled and disappointed” by his cabinet colleague’s decision – he is furious.

The question is whether the resignation was more about welfare or Europe?

Downing Street will be convinced that it is the latter. It is certainly true that this EU referendum has been causing angst in a Conservative party that has tried but failed to avoid blue-on-blue combat over this divisive issue.

Some have been warning for weeks that Duncan Smith was looking for any excuse to resign, arguing that his behaviour over the referendum was almost aggressive. His dismissal of Cabinet Office reports outlining the risks of Brexit as “dodgy dossiers” certainly caused ripples of anger in Downing Street.

But out campaigners – including a number of ministers in the Department for Work and Pensions – had been irritated too.

One senior Brexit supporter told the Guardian they believed David Cameron was acting vindictively. Another warned that if there were a dartboard in parliament, George Osborne’s face would be on it.

The way that some inside DWP talk suggests that the prime minister and chancellor may have had a dartboard of their own – with Brexit-supporting ministers surrounding Duncan-Smith in the bulls-eye.

There is certainly a sense that his position on the EU had made him an easy target for Osborne in the budget; with some believing the Treasury wanted to be able to blame DWP in the aftermath. A senior figure in the department revealed to the Guardian that the PIP reforms in the budget were the “least worst” of a number of options.

Other ideas under consideration included a saving of £0.5bn by cutting benefits for disabled children.

Duncan Smith wanted any reforms to PIP to take place slowly – but the Treasury said the savings had to be included in the budget, according to sources. This infuriated him but he agreed to go along with it, and publicly supported the position. However, it was the way in which the story was briefed in the days after Wednesday’s statement that angered Duncan Smith – in particular that Treasury pointed the finger at DWP when it was clear that they could not hold off a Tory rebellion on the issue.

The Tory war over Brexit clearly made it more likely that Duncan Smith would fire his gun, but weapons have been drawn between DWP and Treasury for some time.

As early as July 2010 – just two months after the Conservatives entered a coalition with the Lib Dems – a meeting between officials from each department bubbled over into anger when Duncan Smith was ordered to redo his sums over plans for an overhaul of the welfare system.

Treasury officials said they were not happy with the potential price tag of ideas being proposed by Duncan Smith – vast reforms that he had been working on for years in opposition. Instead he was forced to realise his reform ambition in the context of major cuts.

It annoyed Duncan Smith that Osborne began pitting his department against all others in Whitehall – warning vociferously that the choice was between cutting the UK’s welfare bill, then running at £192bn a year, or slashing budgets in areas such as schools, the police or transport.

Duncan Smith did not publicly criticise austerity, but he privately insisted that he wanted his changes to be seen as reforming, rather than butchering, welfare. And so began a strained relationship.

Tensions worsened last year in the runup to the election, when a centrepiece of the Tory manifesto was unveiled as £12bn of welfare cuts.

“He has always been of the opinion that you should set out a vision for reform, not have an arbitrary £12bn figure as your starting point,” said one friend of Duncan Smith, who insisted that had raised the issue with both Cameron and Osborne.

His frustration – say sources – was that they were coming “again and again” after working age benefits, which he felt was in conflict with his aim of incentivising work. He argued that the only way to achieve the scale of cutbacks was to instead consider pensioner benefits like the universal offering of free TV licences.

But Cameron and Osborne disagreed. They went for tax credits instead, which caused huge backlash, resulting in something of a climbdown.

Everyone knew that failure to touch the benefits for elderly voters, meant the next alternative had to be disability benefits.

But why, if Duncan Smith was so opposed, did he not warn about a potential resignation before Wednesday’s statement?

Certainly in No 10 and inside the Treasury there is irritation about how this has unfolded. They say that DWP drew up the PIPs reforms in response to an independent review – and are annoyed that Duncan Smith is now distancing himself.

A resignation letter that did not pull its punches will have also caused anger. It struck at the heart of what is meant to be Osborne’s great selling point – his deft political touch. After the U-turn over tax credits last autumn, backbenchers had already wondered whether the chancellor’s judgment had deserted him – and after the budget the murmurs of dissent became a roar.

Like many of the scores of Conservative rebels who were readying themselves for a battle over the disability cuts, before Treasury signalled that it was ready to “kick them into the long grass,” Duncan Smith casts doubt on the thinking process that led the chancellor to juxtapose them with tax cuts for higher earners. Treasury has repeatedly denied any connection between the PIPs savings and the tax cuts Osborne announced in Wednesday’s budget – which included a reduction in capital gains tax and an increase in the threshold at which the 40% rate of tax kicks in.

Inside the Treasury there is cynicism about Duncan Smith’s decision. They do believe that Brexit was behind the damaging change of mind.

Did the EU fight change his mood? Those close to the now former work and pensions secretary say not, insisting that he welcomed the prime minister’s decision to allow ministers to campaign for Brexit. Civil servants inside the department have also insisted that he respected their boundaries, not interfering with their work after the collective responsibility of the cabinet was dissolved over the issue and he decided to back Brexit.

Still, the battle over the EU has caused bitterness in Tory ranks, including among ministers at the top level. This, in a party that has a looming vacancy in No 10, ever since the prime minister said he would not serve a third term. Osborne has his eyes on the prize, but so does leave campaigner, Boris Johnson.

The chancellor will hope that the pack can be shuffled in his favour – with some talk of Osborne’s own protégé Matt Hancock as a potential successor to Duncan Smith.

Whatever the outcome, this is a serious knockback for Osborne – who will need to settle Conservative angst over Europe if he has any chance of fulfilling his ambitions.



