IAIN Duncan Smith is furiously resisting Treasury attempts to raid £2billion from his welfare reforms in order to soften the impact of tax credit cuts, it has emerged.

Friends of the Work and Pensions Secretary claimed he had even threatened to resign over plans to make his signature policy, Universal Credit (UC), less generous.

Another ally of Duncan Smith denied there had been a resignation threat, but told the BBC that preserving UC was “a red line” for him.

The Whitehall feud has been sparked by last month’s vote in the House of Lords which rejected the Tory government’s plans to cut £4.4bn from tax credits next year.

The move would have left around 3m low-income working families £1300 a year worse off.

The defeat has left Chancellor George Osborne looking for an extra £4bn before his autumn budget statement on November 25, and the Treasury believes £2bn could be found from UC.

A replacement for six working age benefits, UC is designed to make work pay and end the poverty trap which sees people lose almost all their benefits if they take on extra hours.

At present, UC claimants lose no more than 65p in benefit for every extra pound they earn.

The Treasury has proposed hiking this “taper rate” to around 75p to raise an extra £2bn - a punitive level Duncan Smith’s officials say would be a disincentive to work.

SNP MSP Clare Adamson said: “George Osborne said he is in ‘listening-mode’ – if he really is then he should hear this groundswell of opposition and halt these cuts which will hit millions.”

Scottish Labour seized on remarks by a senior economist at the Institute of Fiscal Studies (IFS), who said the party’s plan to reverse tax credit cuts seemed “reasonable”.

David Philips told BBC Radio Scotland that Labour’s estimate of £375m a year to top up tax credits if they were cut would “in the short term would be a reasonable one.”