Government’s tax credits cuts plan defeated in House of Lords

He challenged the House of Lords to respect century-old conventions that the unelected upper chamber does not block financial measures approved by the Commons or manifesto commitments.

George Osborne has faced the Commons for the first time since an embarrassing defeat in the House of Lords over his plans to cut tax credits.

Critics said as many as 3 million people would be worse off under the proposed changes, the latest in a string of government spending cuts that are part of the austerity plan enacted by Cameron and Treasury chief George Osborne.

Lord Greaves said: “There are thousands of working families from Lancashire who will lose out on these changes, to the extent of possibly £1300 a year – which is a lot of money if you are living on a low income”.

A rare “fatal motion” tabled by Liberal Democrats that would kill off the changes has not won Labour backing so is unlikely to succeed.

The jubilant shadow chancellor, John McDonnell, said “The Tories are in utter disarray”.

Conservative MPs have reacted angrily to the defeats, accusing the House of Lords of over-stepping the mark, but Labour said the chancellor was “rocking” and demanded a “full U-turn” over the policy.

Tax credits were introduced by Labour to help low-paid families.

More than three million families will lose an average of £1,300 a year from April.

Lord James Mackay, a former Tory Chancellor, went further, announcing Mr Osborne was “very open” to giving ground if the Lords backed down.

“We remain as determined as ever to build the low-tax, low-welfare, high-wage economy that Britain needs and the British people want”.

“The problem is that the people at the bottom of the pile can’t afford anything, frankly”, said Mr Davis.

The Prime Minister’s official spokeswoman said: “The policy is the policy”.

Mr Osborne said: “I said I would listen to the concerns being raised and that is precisely what I will do”.

Nothing has been ruled out in the “rapid review” of rules governing the relationship between the Commons and Lords ordered by David Cameron after Government plans to cut tax credits were blocked.

Created to reduce the annual welfare bill by around 4.4 billion pounds, the changes have been widely criticised by those who say they will penalise working families – including by a few Conservative lawmakers. They will also have a huge impact on the important principle-that this Government claim to support-that work should always pay more than a life on benefits.

The vote also tees up a power struggle between the Lords and the directly-elected Commons, that could reignite calls for a radical overhaul of the lawmaking process.

“Both Michael Ellis MP and David Mackintosh MP should be ashamed in voting for the cuts to tax credits”. For there are many Tories who feel uneasy about the way the tax credits reforms are being implemented, including the former Chancellor, Lord Lawson.

But a motion delaying the cuts until the Government responds to analysis of their impact of the changes by the Institute for Fiscal Studies was passed with a majority of 30.

Downing Street has signalled a review of Lords conventions to address what it says are “constitutional issues”.