Duncan Smith, now Sir Iain, has been recognised for “political and public service” and is the most prominent politician to feature.
As work and pensions secretary under David Cameron, Sir Iain was the architect of the controversial Universal Credit benefits system, which has received massive criticism for leaving poorer claimants less well-off.
The Chingford and Woodford Green MP was also a leading figure in a group of hardline Brexiteer Tory rebels who ultimately forced out Theresa May and paved the way for Boris Johnson to take over as prime minister earlier this year.
Mr Duncan Smith previously led the Conservatives in a disastrous spell between 2001 and 2003.
Opposition parties said it “beggared belief” that someone whose benefits policies had caused so much distress should be honoured in this way.
The Trussell Trust food bank network said in 2017 that its referral rate doubled in areas where the full Universal Credit rollout took place.
Liberal Democrat MP Christine Jardine said he had been responsible for creating a welfare system in which people were expected to survive for weeks without payment, causing “untold stress”.
“It beggars belief that Iain Duncan Smith has been rewarded in the New Year’s Honours list,” she said.
A Labour Party spokesman said it was “unfortunate to see that one of Boris Johnson’s first priorities” was to reward Sir Iain – the “primary architect of the cruel Universal Credit system, which has pushed thousands of people into poverty” – with a knighthood.
“Boris Johnson should be trying to fix his party’s shameful mistakes, not give out rewards to those responsible for its failure,” they said.
Meanwhile, Brexit Party leader Mr Farage will not be known as “Sir Nigel” after weeks of speculation that he would receive a knighthood.
Betting odds had shortened in previous weeks, following Mr Farage’s decision to stand down Brexit Party candidates in Tory-held seats in the general election.
Tory MP Andrew Bridgen, another hardline Brexiteer, had even written to Mr Johnson calling for Mr Farage to be knighted for “the work he has undertaken over many years to advance the case for the UK leaving the European Union”.
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One other Tory MP, Bob Neill, has also been knighted for “political service”.
Labour MP Diana Johnson, who campaigned on behalf of victims of the NHS contaminated blood scandal, is made a dame.
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