How do we decode the sensational resignation of IDS - and what do the signs really mean?

Osborne is trapped by the pivotal decision he took in opposition, to seek a quick return from deficit to surplus his defining mission

George Osborne outside 11 Downing Street before delivering his Budget last week (EPA)

Sometimes a political drama is played out in code. A huge amount of decoding is required to make sense of it all. The fallout from the resignation of Iain Duncan Smith is not one of those dramas. What we know – what is being played out in front of our eyes – is sensational and transparent enough.

What do we know? Duncan Smith has resigned from the cabinet. His departing letter was a demolition of George Osborne’s claim that “we are all in this together”. A critical reader of the letter might disagree with the argument or assert that Duncan Smith has no right to make such a case as had accepted the cuts imposed on him by the Treasury for six years.

But it is hard to conclude from the authentic passion conveyed in the letter that Duncan Smith resigned because of the EU referendum. No doubt if Osborne was leading the Out campaign, Duncan Smith would not have sought to strike against him now. But the fundamental cause of Duncan Smith’s resignation is there in his letter and his interview with Andrew Marr this weekend: the relentless demands from Osborne for welfare cuts. In relation to the referendum, Duncan Smith plans to campaign slightly less actively now as he focuses more on the issues that he insists provoked his resignation.

What else do we know? For the second successive Budget Osborne announced highly sensitive welfare cuts. Having had to scrap his plans for cuts to the working poor in the autumn the Chancellor proposed reductions to disability benefits in a pre-referendum Budget when he was seeking to be assiduously cautious. These cuts will also be scrapped, the speediest U-turn in Budget history.

The sequence lights up a political stage darkened by misleading claims about the “centre ground”, “modernisation” and what it is to be “progressive”. Minutes after Osborne’s budget last summer, hailed by the media chorus as one that triumphantly commanded the “centre ground”, I bumped into David Davis, the former leadership contender supposedly to the right of Cameron and Osborne, who told me that the proposed welfare cuts were “brutal” and had to be stopped.

During the Coalition, Duncan Smith sometimes worked in alliance with Nick Clegg to block Osborne’s demands for cuts. It is the departing Welfare Secretary who misses the Liberal Democrats’ decisive support in previous battles with Osborne. So who is on the right of the Conservative party and who is on the centre ground?

Osborne is trapped by the pivotal decision he took in opposition, to seek a quick return from deficit to surplus his defining mission. Even the right-wing Republican administration in the US supported a fiscal stimulus after the financial crash. Cameron and Osborne called for immediate real-terms spending cuts, the only mainstream Western politicians making such a case. The stance enabled them to move back to their ideological comfort zone after pretending to support Labour’s spending levels and to blame Labour for spending recklessly. As Osborne saw it he could also target the welfare budget in a way that played well in opinion polls. Allies of Duncan Smith say that before the last election Osborne told him that the bigger the cuts they proposed in welfare the more they would “trap Labour”.

Instead the welfare cuts as part of a deficit reduction strategy has trapped Osborne. His Budget last week makes sense in a single context. He had to show he was on course to meet his surplus target having made it his defining mission, even though he was as off course as ever. There is a parallel. Tony Blair decided he had no choice but to support a US President wanting to attack Iraq and as a result of that fundamental decision became dependent on tendentious intelligence to make his case. Osborne had no choice in his Budget last week to claim a big deficit in 2019 would become a surplus by 2020 having placed such disproportionate focus on a rigid target. As part of his case he needed more savings from welfare to give the unconvincing figures a hint of credibility.

Another element of this saga that we know for sure is that no one in No 10 stopped Osborne from walking towards another obvious humiliation. No one would cite the dysfunctional Blair/Brown relationship as a working model, but at least the mutual suspicions, loathing, genuine ideological differences, meant that policies were scrutinised around the clock and sometimes blocked by the opposing camps. Cameron’s scrutiny of Osborne appears to be virtually non-existent.

Quite a lot of the time they both act as if they rule with a landslide majority. Recently, Peter Mandelson suggested that Cameron and Osborne had copied New Labour “to the letter”. In some respects the opposite is closer to the truth. New Labour won huge landslides and then governed with cautious defensiveness, fearful of alienating anyone, not least London’s right-wing media. Cameron and Osborne have governed with no majority, or a tiny one, and yet announce contentious radical policies as if they face no obstacles. Above all, it does not take the antennae of a political genius to wonder whether with a majority of 12 they would get disability cuts through a restive House of Commons when they could not secure enough support for other welfare reductions last autumn.

The drama as a whole challenges not only the Cameron/Osborne claim to be on the vaguely defined centre ground but also to be ‘modernisers’, a duo that has marched their party on from a troubled recent past. Their party is falling apart over Europe and the role of the state, just as it was in the mid 1990s. The Conservatives need to have a much deeper debate about the purpose and mission of a modern centre right party than the one held under their confused leadership. Such a debate will not end with the referendum. Indeed, that is when it will begin.