IDS resignation 'undermines everything'

On Wednesday night, senior figures in the Treasury felt quite chipper about the Budget.

They knew that things would get a bit bumpy over the cuts to benefits for some disabled people. But in the words of one senior Conservative, the changes were "defensible" on Wednesday because MPs would be able to say it was true that the overall budget was going up.

But as MP after MP expressed concern over those welfare changes, the policy became impossible to defend. The sense at the Treasury on Thursday was that if Iain Duncan Smith's department wanted to tweak the policy, fair enough - but he had to find the savings dictated by the welfare cap.

Well, no more. Through today it became impossible to defend the policy. And now, Mr Duncan Smith's resignation and his explosive explanation of his motivations undermines everything.

And it creates a list of problems for the government as long as your arm.

First, it means moves in ministerial teams at a hugely sensitive time.

Second, it undermines not just these particular reforms but the whole Budget.

Third, Mr Duncan Smith's letter suggests the government's mantra that "we are all in this together" is not true.

Fourth, this creates even more animosity in the Tory party during the EU referendum campaign.

Five, this attack on the Budget undermines George Osborne's chances of taking over the Tory leadership, when this budget was seen as a chance for him to burnish those credentials after a few bruising encounters.

And now IDS is out of government, what more will he have to say?

Update 23:50:

IDS has for some months had doubts about staying on in government but what are the events that led to his dramatic exit tonight? This timeline of events may be disputed on the record, but sources familiar with what happened in the last few days have given me this account.

1. The Treasury tells the Department for Work and Pensions they have to get long-term PIPs changes ready for Budget so the savings can be included. The DWP reluctantly agrees.

2. The story about changes to PIPs breaks on Friday, campaign groups, opposition and some backbench MPs start to get worried

3. On Saturday, IDS finds out that Budget will also give Capital Gains Tax cuts to better off voters at the same time as the cuts to disability benefit cuts for individuals that he resisted.

4. Iain Duncan Smith was angry about those reforms happening at the same time, but he does not conclude at that point that he has to resign.

5. After the Budget, opposition and Tory backbenchers start to speak out against PIP changes

6. On Thursday, the Treasury and Number 10 pressure IDS's team to get out and defend the changes, saying they must not back down. IDS himself refuses to defend them publicly, but junior minister Justin Tomlinson agrees to a series of TV interviews.

7. Late on Thursday night, Education Secretary Nicky Morgan hints that there might be changes, although the Department for Work and Pensions had been told to stand firm. This angers Duncan Smith further.

8. Late on Friday afternoon, government sources say that the policy on PIPs has been dumped, "into the long grass" making Iain Duncan Smith furious the policy he only reluctantly signed up to has been junked by the party leadership.

9. He decides to quit and the prime minister fails to persuade him to stay on. He pens his explosive letter questioning the government's central defence of its central policy of slimming down government spending, "we're all in it together".

Now Iain Duncan Smith, who made his name as a Maastricht rebel, is out of government, what will he say next?