Senior UK minister resigns over planned welfare cuts

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By William James

LONDON, March 18 (Reuters) - A senior British cabinet minister resigned on Friday citing concerns about the latest round of cuts to benefits announced earlier this week, in a surprise move that heaps pressure on finance minister George Osborne.

Iain Duncan Smith, whose Work and Pensions department oversees the welfare system, said in his resignation letter to Prime Minister David Cameron that he had made the decision over cuts to disability payments. He said such cuts were only necessary to meet fiscal conditions set out by Osborne.

"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," a copy of the letter posted online by broadcaster ITV (LSE: ITV.L - news) said.

"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."

Osborne faces a growing rebellion from within his own party over the plan which tightens eligibility criteria for a state benefit which supports the disabled or long-term sick. The cuts amount to 4.4 billion pounds ($6.36 billion) over the next five years.

In his annual budget on Wednesday, Osborne cut corporation and capital gains taxes and lifted the earnings threshold at which the higher rate of income tax is payable while warning the economy would grow more slowly than previously forecast.

Duncan Smith's resignation comes at a time when the Conservative Party is already deeply divided over an upcoming referendum on whether Britain should stay in the European Union.

Duncan Smith is one of several senior Conservatives campaigning to leave the bloc, while Cameron and Osborne want to remain. London Mayor Boris Johnson, seen as Osborne's main rival for the party leadership when Cameron steps down, is also backing an 'Out' vote. (Reporting by William James; Editing by Catherine Evans)