Iain Duncan Smith's 'threat to resign' moves closer as George Osborne calls his bluff over further welfare cuts

Work and Pensions Secretary is resisting the Chancellor's attempts to cut up to £2bn from his flagship Universal Credit programme

Iain Duncan Smith has made clear a further raid on Universal Credit would be a 'red line' (PA)

Iain Duncan Smith is continuing to resist George Osborne’s demands to make further cuts to the welfare bill, taking his threat to resign over the issue closer to reality.

The Chancellor will pile pressure on the Work and Pensions Secretary by announcing that four Whitehall departments have agreed to his demands to make budget cuts of 8 per cent a year over the next four years.

Transport, Environment, Local Government and Treasury departments will see their budgets cut by 30 per cent from 2016-2020.

But Mr Duncan Smith has yet to agree to Mr Osborne’s demands to raid his flagship Universal Credit programme, which rolls various different benefits into one payment system.

He faces the prospect of appearing before a committee chaired by Mr Osborne this week to explain why welfare should be spared while fellow unprotected departments have been forced to make significant savings.

Reports over the weekend said he was ready to make the demands a resigning issue if Mr Osborne forced it through. A friend of the former Tory leader told The Times: “The Treasury have come after UC [universal credit] at every fiscal event and Iain has made clear every time that this is a red-line issue for him. "That is the case now as it has been in the past."

Mr Duncan Smith has dug in despite Mr Osborne telling departments in July that they must submit two models for savings for the next four years: one for 25 per cent and another for 40 per cent of cuts.

The huge £217bn Work and Pensions budget is a key target for Mr Osborne’s attempt to balance government spending by 2018/19 and he promised to slice £12bn from the welfare bill at the election.

With the Chancellor forced to soften his £4.5bn cuts to tax credits, he is looking to make up savings elsewhere in the welfare bill and has reportedly demanded cuts of up to £2bn from Universal Credit.

Unprotected departments are under even more pressure due to a number of budgets having been ring-fenced by the Chancellor.

The Tories promised to increase spending on health, defence and international development while the education budget will be protected in real terms spending.

In a speech today, Mr Osborne will say Britain must not “lose its nerve” on spending cuts in order to secure an economically stable future, insisting that the nation’s security is in danger as long as debt is high.

“No one knows what the next economic crisis to hit our world will be or when it will come,” he will say in a speech at Imperial College London.

“But we know we haven’t abolished boom and bust. We know we must prepare for whatever the world throws at us.”