Iain Duncan Smith's resignation shows Tory unity eroding in advance of the referendum

It will be impossible to unite the party in the remaining three months of the referendum campaign

Britain's former Secretary for Work and Pensions, Iain Duncan Smith, arrives for a television interview in central London (Reuters)

“This is not personal,” Iain Duncan Smith said as he made a powerful case that his dramatic resignation was all about the policy on welfare cuts.

As the mafia bosses say in “The Godfather”, it’s “strictly business.”

There is no doubt that the former Work and Pensions Secretary was on a moral mission to reform welfare. But of course it’s personal: the manner of his spectacular departure was designed to inflict maximum personal damage on his enemy George Osborne. It worked. The Chancellor could not afford another “Omnishambles Budget”. But Mr Duncan Smith knew that resigning over a Budget measure would wreck it. Mr Osborne has bounced back before and should never be underestimated, but it is now difficult to imagine him succeeding David Cameron. The Chancellor has always viewed the leadership stakes like a game of musical chairs: it all depends on where you are when the vacancy arises. If he is in the wrong place, as now seems likely, he might not run at all.

Mr Duncan Smith has widened his fire to inflict personal damage on Mr Cameron too. While insisting he would vote for him if there were a leadership contest now, he undermined the Cameron legacy project – to complete the detoxification of the Conservative Party and govern for One Nation.

Mr Duncan Smith argued that the Cameron-Osborne mantra —that “we are all in this together” —is fraudulent when working age benefits soak up all £30bn of welfare cuts while pensioners are cossetted. His warning about the generational divide touches a raw nerve. Mr Cameron’s problem is of his own making — his manifesto commitment to keep pensioners’ perks like winter fuel allowances, bus passes and TV licences, and to keep the £6bn “triple lock” on the state pension (which means it rises by at least 2.5 per cent even when inflation is lower). A fair Budget would have cut the perks for wealthy pensioners.

Crucially, Mr Duncan Smith cited hitting disability benefits while reducing taxes for people paying the 40p higher rate and cutting capital gains tax. He suggested that Cameron-Osborne do not really care about people who don’t vote Tory. In the long run, this may be prove the most damaging aspect of his resignation. It takes years to convince voters that the rebranding of a political party is for real. With Labour playing on the left under Jeremy Corbyn and the Liberal Democrats off the pitch, the Tories had a unique opportunity to seize and hold the centre ground. Mr Duncan Smith’s devastating attack revives the “nasty party” image. Mr Cameron will need to work overtime for the rest of his time in Downing Street to counter it.

Would all this be happening without the EU referendum? Probably not, despite Mr Duncan Smith’s insistence that it has nothing to do with Europe. “He has been on the verge of resigning for the last six years,” said one Cameron ally. Since 2010, he has locked horns with the Treasury over his flagship Universal Credit, which will merge six working age benefits to improve work incentives. The scheme has been beset with implementation problems. In an age of austerity, and with welfare taking up about a third of public spending, the Treasury inevitably pared back the cost. Under Mr Duncan Smith’s original 2009 plan, claimants would have kept 45p of every extra £1 they earn. Now it is 35p.

Mr Duncan Smith has threatened to quit on several occasions since 2010 but always stayed to fight for his cause. His calculations were different this time. As one of six cabinet ministers who favour leaving the EU, he has been outspoken in his criticism of Mr Cameron for using the government machine to promote an In vote in the June referendum, claiming he has frozen out the ministers who want Out. Relations were so strained that Mr Duncan Smith judged that he would probably be sacked after the referendum if the public vote to remain in the EU. So better to go out with a bang now, fighting his welfare crusade, than a whimper in June.

The episode illustrates how the referendum has destroyed the Tories’ unity and discipline way beyond the single issue of Europe. It was not supposed to be like this. But Mr Cameron has unleashed a monster he cannot control. It will be impossible to unite the party in the remaining three months of the referendum campaign. Mr Duncan Smith’s actions will make it much harder to do so afterwards.

Isolated from decision-making: Duncan Smith’s criticisms

1 Hitting the working poor too hard

Mr Duncan Smith said the Tories were at risk of “losing the balance of the generations” by cutting working-age benefits without touching benefits for wealthy pensioners. “With inflation running at zero, we really need to look at this and ask: should is just be working-age [people] bearing the brunt?”

2 Welfare cap is “arbitrary”

The cap, which was “reset” and lowered in July, had become “arbitrary”, he said, not allowing for effective policy.

3 Cameron and Osborne ruling alone

He said he had felt “isolated” during recent decisions about welfare spending.

4 Deficit reduction at all costs

He said other disability cuts, such as the Employment Support Allowance (ESA), had been the result of a “desperate search for savings” in the run-up to the Budget.

5 Abandoning one nation

The cumulative effect of cuts to welfare combined with tax breaks for higher earners and protection for pensioners risked losing the “narrative that the Conservative party was this one nation party”.