David Cameron has said he is "puzzled and disappointed" after Iain Duncan Smith dramatically quit the Cabinet and launched an all-out attack on the "indefensible" Budget.
In a brutal parting shot, the Work and Pensions Secretary complained that cuts to disabled benefits in George Osborne's financial package were "politically driven" and suggested the Chancellor had abandoned the austerity principle of "all in this together".
"I have for some time and rather reluctantly come to believe that the latest changes to benefits to the disabled and the context in which they've been made are a compromise too far," Mr Duncan Smith wrote in his resignation letter.
"While they are defensible in narrow terms, given the continuing deficit, they are not defensible in the way they were placed within a Budget that benefits higher earning taxpayers. They should have instead been part of a wider process to engage others in finding the best way to better focus resources on those most in need.
"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."
Mr Duncan Smith has been at loggerheads with Mr Cameron and Mr Osborne over whether Britain should stay in the EU, joining a handful of other Cabinet ministers in calling for Brexit. But his letter to the Prime Minister indicated that the row over cuts to the Personal Independence Payment (PIP) had been the last straw.
His announcement came hours after the Treasury signalled a humiliating climbdown over the plans to change PIP assessment criteria, which were expected to slash around £1.3 billion a year off the cost.
Government sources said they wanted to kick the proposals - initially announced by the Department for Work and Pensions last week - "into the long grass" and were not "wedded" to the savings figures featured in the Budget.
Mr Osborne has also retreated on two other Budget issues that ran into strong opposition from Tory backbenchers - promising legislation next week to abolish the so-called "tampon tax" and ruling out higher VAT on solar panels and energy efficiency equipment.
In his letter responding to Mr Duncan Smith, Mr Cameron wrote: "I regret that you have chosen to step down from the Government at this moment.
"Together we designed the Personal Independence Payment to support the most vulnerable and to give disabled people more independence. We all agreed that the increased resources being spent on disabled people should be properly managed and focused on those who need it most.
The most ridiculous reasons people had their benefits sanctioned
The most ridiculous reasons people had their benefits sanctioned
"One case where the claimant’s wife went into premature labour and had to go to hospital. This caused the claimant to miss an appointment. No leeway given"
"It’s Christmas Day and you don’t fill in your job search evidence form to show that you’ve looked for all the new jobs that are advertised on Christmas Day. You are sanctioned. Merry Christmas"
"You apply for three jobs one week and three jobs the following Sunday and Monday. Because the job centre week starts on a Tuesday it treats this as applying for six jobs in one week and none the following week. You are sanctioned for 13 weeks for failing to apply for three jobs each week"
"A London man missed his Jobcentre appointments for two weeks because he was in hospital after being hit by a car. He was sanctioned"
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"You’ve been unemployed for seven months and are forced onto a workfare scheme in a shop miles away, but can’t afford to travel. You offer to work in a nearer branch but are refused and get sanctioned for not attending your placement"
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"You are a mum of two, and are five minutes late for your job centre appointment. You show the advisor the clock on your phone, which is running late. You are sanctioned for a month"
"A man with heart problems who was on Employment and Support Allowance (ESA) had a heart attack during a work capability assessment. He was then sanctioned for failing to complete the assessment"
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"A man who had gotten a job that was scheduled to begin in two weeks’ time was sanctioned for not looking for work as he waited for the role to start"
"Army veteran Stephen Taylor, 60, whose Jobseeker’s Allowance (JSA) was stopped after he sold poppies in memory of fallen soldiers"
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"A man had to miss his regular appointment at the job centre to attend his father’s funeral. He was sanctioned even though he told DWP staff in advance"
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"Ceri Padley, 26, had her benefits sanctioned after she missed an appointment at the jobcentre - because she was at a job interview"
Jason Doiy Photography
"A man got sanctioned for missing his slot to sign on - as he was attending a work programme interview. He was then sanctioned as he could not afford to travel for his job search"
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"Mother-of-three Angie Godwin, 27, said her benefits were sanctioned after she applied for a role job centre staff said was beyond her"
"Sofya Harrison was sanctioned for attending a job interview and moving her signing-on to another day"
"Michael, 54, had his benefits sanctioned for four months for failing to undertake a week’s work experience at a charity shop. The charity shop had told him they didn’t want him there"
"Terry Eaton, 58, was sanctioned because he didn’t have the bus fare he needed to attend an appointment with the job centre"
"That is why we collectively agreed - you, No 10 and the Treasury - proposals which you and your department then announced a week ago. Today we agreed not to proceed with the policies in their current form and instead to work together to get these policies right over the coming months.
"In the light of this, I am puzzled and disappointed that you have chosen to resign."
Labour leader Jeremy Corbyn and Liberal Democrat chief Tim Farron have demanded that Mr Osborne follow Mr Duncan Smith's example and resign.
"The Budget has exposed George Osborne's record of profound unfairness and economic failure. Not only must the cuts to support for disabled people be abandoned, but the Government must change economic course," Mr Corbyn said.
"The Chancellor has failed the British people. He should follow the honourable course taken by Iain Duncan Smith and resign."
Mr Duncan Smith said he was "incredibly proud" of the welfare reforms he had overseen over the past five years.
"Throughout these years, because of the perilous public finances we inherited from the last Labour administration, difficult cuts have been necessary," he said.
"I have found some of these cuts easier to justify than others but, aware of the economic situation and determined to be a team player, I have accepted their necessity.
"You are aware that I believe the cuts would have been even fairer to younger families and people of working age if we had been willing to reduce some of the benefits given to better-off pensioners but I have attempted to work within the constraints that you and the Chancellor set."
Mr Duncan Smith, who said he was resigning with "enormous regret", delivered a withering assessment of Mr Osborne's fiscal rules - which include an overall cap on welfare spending, cutting debt as a proportion of GDP every year, and recording an absolute surplus by 2020.
The Chancellor has already breached the welfare cap and confirmed in Wednesday's Budget that he would break the debt rule.
Mr Duncan Smith wrote. "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."
In the most cutting passage, Mr Duncan Smith cited a phrase often used by Mr Cameron and Mr Osborne, stating: "I hope as the Government goes forward you can look again ... at the balance of the cuts you have insisted upon and wonder if enough has been done to ensure 'we are all in this together'."
Tory MP and fellow Brexit campaigner Peter Bone said: "IDS has always been a man of conviction! Tonight, yet again he put the country first."
Andrew Percy, who led a Conservative backbench revolt against the PIP cuts, wrote on Twitter: "Credit to IDS. I'll say no more tonight but all is not as it has seemed in the past few days."
Tory backbencher Jacob Rees-Mogg said that Mr Duncan Smith had been "as important a welfare secretary as I can think of" and it was a blow for the Government to lose such a "substantial figure".
But a number of Labour MPs insisted Mr Duncan Smith's departure was driven by the EU referendum battle.
Former frontbencher Chuka Umunna said: "IDS resigning has everything to do with the EU and nothing to do with welfare - why wait this long after causing misery to so many to resign?"