George Osborne: We listen and learn from mistakes

George Osborne has told MPs he was "sorry" Iain Duncan Smith resigned and was "proud" of their work together.

Defending his handling of the economy ahead of a vote to approve his Budget, the chancellor said Treasury talks with departments had often been "robust".

But where mistakes were made he was ready "to listen and learn", he added.

Labour said Mr Osborne would have to raid the welfare budget further or "ditch" his self-imposed cap on overall benefits spending.

Mr Osborne's Commons performance came after Mr Duncan Smith's post-Budget decision to quit, with a blast at "indefensible" changes to disability benefits.

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Mr Osborne confirmed he had dropped planned cuts to Personal Independence Payments (PIPs) and said no further welfare savings were anticipated beyond the £12bn already approved by Parliament towards his target of balancing the books by 2020.

But he came under sustained pressure from Labour to explain how he will cover the £4.4bn gap in the Budget left by the rethink.

Former minister Yvette Cooper said Mr Osborne would either have to backtrack on ring fencing welfare or accept he would breach his self-imposed cap on welfare spending, the total limit on the amount of taxpayers' cash that goes on benefits.

"Either he has ripped up his own welfare cap and ditched another big plank of his Budget in just a few days," she said.

"Or he and the work and pensions secretary (Stephen Crabb) have used the most awful weasel words in Parliament and there are still more welfare cuts to come. Either this is chaos or it is a con."

The chancellor told MPs that the disability benefit cuts, likely to have affected up to 640,000 people, did not "command support".

Analysis by the BBC's political editor Laura Kuenssberg

Away from the sound and fury in the Commons this afternoon, and there has been a lot of it, did George Osborne gave even more of a hint that the government is likely to ditch or at least relax the restrictions it has placed on welfare?

Labour backbenchers managed to press him into almost repeating Stephen Crabb's statement a day earlier that the government won't introduce new extra cuts to welfare.

It looks like it will be rather hard for the government to keep its promise to keep welfare spending within its set limits, and the (almost) promise they made this afternoon.

It's clear from the Budget that the government is committed to meet its cap on welfare spending, a total limit on the amount of taxpayers' cash that goes on benefits, by 2020.

It's also clear the government intends to spell out how it will do that this autumn. But when you look at the numbers in the Office for Budget Responsibility's book, it says welfare spending is expected to be more than £3bn over the cap, in 2020.

So if the government really intends to hit the cap they will either have to find more welfare cuts after all, or relax the cap this autumn, or quietly ditch it altogether.

The Treasury and the Department for Work and Pensions are yet to answer this question. But it seems politically impossible to go back for more cuts, politically unlikely that Mr Osborne will ditch his beloved welfare cap, so now, more likely than not, that in the autumn the limit will have to be raised again.

But he said he was "proud" of the government's record, insisting that spending on disability benefits would still be higher in 2020 than it was now and 300,000 people with disabilities had found work in the past couple of years.

Praising Mr Duncan Smith, with whom he is reported to have had a history of disagreements, he said: "I'm sorry that my right honourable friend chose to leave the government and let me here in this House recognise his achievements in helping to make work pay, protecting the vulnerable and breaking the decades old cycle of welfare dependency."

But he rejected his former colleague's charge that the chancellor's fiscal targets risked dividing society and working-age benefit claimants were being unduly penalised by a "desperate search" for savings.

"There is not some inherent conflict between delivering social justice and the savings required to deliver sound public finances," he said. "There are one and same thing. Without some public finances there is no social justice."

BBC political correspondent Tom Bateman

It was clear that the chancellor was opting for spiritual healing rather than keyhole surgery.

His departed colleague Iain Duncan Smith was praised for having helped to create a fairer society.

The chancellor even dared to reclaim the mantra the former work and pensions secretary questioned in his resignation letter - "we are all in this together" he promised.

It would set the tone for the chancellor's statement, which was more often about the big picture on the economy rather than the fiscal detail.

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In his resignation letter, Mr Duncan Smith said targeting disability benefits at the same time as cutting corporation and capital gains taxes flew in the face of the prime minister's and Mr Osborne's oft-repeated claim that "we are all in this together".

Conservative MPs noisily backed Mr Osborne during the debate although former chancellor Ken Clarke noted Mr Osborne had ruled out rises in income tax, VAT and national insurance and urged him to consider asking better-off pensioners to give up free bus passes and winter fuel allowances.

In response, Mr Osborne said people who had worked hard all their lives deserved a "decent, generous basic state pension and I am not going to take that away".

Shadow chancellor John McDonnell described his opposite number as a "political chancer" while Lib Dem leader Tim Farron said Mr Osborne's reputation was tarnished and he risked damaging the campaign to keep the UK in the EU.

As well as the welfare changes, Downing Street said ministers would also not seek to oppose amendments to scrap the so-called "tampon tax" and an increase in VAT on solar panels.