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Iain Duncan Smith quits over planned disability benefit changes
"I am unable to watch passively whilst certain policies are enacted in order to meet the fiscal self-imposed restraints that I believe are more and more perceived as distinctly political rather than in the national economic interest," he said in his resignation letter.
"Too often my team and I have been pressured in the immediate run up to a budget or fiscal event to deliver yet more reductions to the working-age benefit bill.
"There has been too much emphasis on money-saving exercises and not enough awareness from the Treasury, in particular, that the government's vision of a new welfare-to-work system could not be repeatedly salami-sliced.
"It is therefore with enormous regret that I have decided to resign."
BBC political editor Laura Kuenssberg said: "A senior government official has said there is surprise at Duncan Smith's decision because this policy was worked up by the Treasury and the Department of Work and Pensions.
"It was being defended this morning, and through today there was a decision to move away from it after discussion in government. One source suggested Iain Duncan Smith's involvement in the campaign to leave the EU may have been a factor in his decision."
Mr Osborne has insisted the "most vulnerable" will still be protected, and that ministers would be talking to colleagues and disability charities to "make sure we get this absolutely right".
In his Budget on Wednesday, Mr Osborne said that the government would be spending an extra £1bn on disability.
However, changes to disability benefits announced a few days earlier suggested the government would save £4.4bn by 2020-21.
Labour's shadow work and pensions secretary Owen Smith said it was "ludicrous" to claim the changes were not a "major part" of the Budget.
Speaking after a government source indicated there would be a rethink to the planned changes earlier on Friday, he said: "If the Tories are now postponing or cancelling these cruel cuts altogether it is a humiliating climbdown for George Osborne, although it will come as an incredibly welcome reprieve for hundreds of thousands of disabled people who were due to be affected.
"Everything about these cuts is shameful. There is no moral, political or economic case for targeting disabled people in this manner."