Peers Deal Blow To Welfare Reform Plans

The Government has suffered an "embarrassing" defeat over its welfare reform proposals as peers voted to exclude child benefit from the £26,000 cap.

Peers voted by 252 to 237, a majority of 15, in favour of an amendment introduced by the Bishop of Ripon and Leeds, the Rt Rev John Packer, which received Labour backing.

He said: "It cannot be right for the cap to be the same for a childless couple as for a couple with children. Child benefit is the most appropriate way to right this unfairness."

He argued that, in effect, the cap denied child benefit payments to people whose other benefits had reached £500 a week.

"This cap is not simply targeted at wealthy families living in large houses," he said.

"It will damage those who have to pay high rents because often that rent has increased substantially in the course of their occupancy of that house."

Sky's chief political correspondent Jon Craig said: "The big story is of a huge rebellion - a mutiny led by Paddy Ashdown, which he announced on Sky News.

"He said he was going to do it, and he did."

He added: "It's a huge embarrassment for the Government."

In a statement a Department for Work and Pensions spokesperson said: "We are very disappointed by this decision and it clearly flies in the face of public opinion. There has to be a limit on the amount of money benefit claimants can receive.

"If you take child benefit out of the cap - it will simply become ineffective, failing the very principles of our reforms, which is to bring fairness back into our welfare system while ensuring that support goes to those who need it.

"We are determined our reforms will be implemented in full and we will take this back to the House of Commons to reverse tonight's decision."

The defeat was the fifth the Government has received on the Bill, including three on one day earlier this month.

But ministers saw off a Labour-led move earlier today to exempt families threatened by homelessness from a benefits cap by 250 votes to 222, majority 28.

The Government is facing a concerted attack from Labour peers, Church of England bishops and some Liberal Democrat rebels who want concessions.

Former Lib Dem leader Lord Ashdown became the most high-profile figure so far to speak out against the plans, denouncing them as "completely unacceptable" in their current form.

The defeat, which came during report stage debate on the Welfare Reform Bill, is likely to be overturned when the legislation returns to the Commons.

Welfare reform minister Lord Freud defended the cap, insisting households should not be able to receive more in benefits than the average family earned from work.

"People on benefits should face the same choices as working families, including where they can afford to live," he said.

Arguing against the bishop's proposals, he added: "Like other welfare benefits, child benefit is provided by the state and funded by taxpayers and therefore we believe it is right it is taken into account along with other state benefits when applying the cap.

"The effect of excluding child benefit would simply be that families on child benefit would have an income higher than average earnings - there would be no upper limit to the amount of benefit a household could receive as that would clearly depend on the number of children."

Former Lib Dem chief whip Lord Kirkwood of Kirkhope said he was opposed in principle to a household benefit cap.

He said it allowed ministers arbitrarily to "over-ride" people's rightful benefit entitlements and insisted: "I don't think it's safe to grant ministers these powers."

The vote on the controversial welfare reforms comes after Iain Duncan Smith told Sky News that they are not designed to "punish".

Despite the divisions in his own ranks, Deputy Prime Minister Nick Clegg has said he is fully signed up to the changes.

Prime Minister David Cameron said: "It's a basic issue of fairness. It's time to call time on these excessive welfare payouts. That's what the benefit cap will do."