Humiliation for Cameron and Osborne as peers DEFEAT plan to slash tax credits for 3 million families

• House of Lords voted on the government's tax credit proposals tonight 
• Labour and Lib Dem peers united to block the controversial measures
• Unprecedented for peers to block a finance measure backed by MPs 
• House of Lords voted 289 to 272 to delay the changes for three years
• Proposals are central to George Osborne's plan to eliminate the deficit  

George Osborne was left reeling tonight after peers dramatically threw out the government's planned tax credits cuts - overturning the views of elected MPs.

The House of Lords voted 289 to 272 delay the changes for three years until measures could be introduced to protect poor families. 

The tax credit cuts are central to the Government's plan to eliminate the deficit by 2020 - saving £4.4billion from the welfare bill.

Downing Street said the UK was in 'unchartered waters' after the vote, which goes against centuries of tradition that the House of Commons decides financial matters.

In a highly-charged debate, a string of bishops queued up to attack the 'morally indefensible' cuts, which the Archbishop of York said would force hard working families to turn to loan sharks.

One Labour peer accused the Conservatives of having 'lied' before the election. A number of Tories - including the former Tory chancellor Lord Lawson - even spoke out against the measures.

Ministers are now understood to be considering whether to bring the tax credit cuts back in their current form – which would require another vote in both the Commons and the Lords – or to attach them to another bill.

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The House of Lords voted 307 to 277 to delay the changes for three years, despite them being central to George Osborne's plan to eliminate the deficit by reducing the welfare bill by £12billion

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The Conservative leader in the Lords, Baroness Stowell (left) promised that George Osborne (right) would 'listen very carefully' to concerns about the benefit cuts

WHAT ARE TAX CREDITS AND HOW MUCH ARE THEY WORTH?

Tax credits are monthly benefits paid directly into people's bank accounts to top up their wages.

They are two separate types - working tax credit for those on low pay and child tax credit for struggling families.

Parents over 16 can claim child tax credits - but earners must be over 25 to receive working tax credits.

Single earners working full time without children can qualify for the benefit if they earn less than £13,250 a year - or £18,000 as a couple.

A family with children earning below about £32,200 can claim child tax credit.

It used to be that the more children you have, the more people could receive - but new measures limit the benefit to two children.

The basic payment for a single claimant on working tax credits is £1,940 a year. 

Single parents can receive an extra £2,010 on top of this.

To encourage work people who work more than 30 hours a week can receive an extra £810 - and disabled workers up to £2,970 more.

Overall, the average award of tax credit is £6,340 per year.

Child tax credit claimants get £545 a year as a flat payment - plus £2,780 per child for the first two children.

About 4.5million people claim tax credits - costing the government £30billion a year.

Tax credits were introduce in their current form by Gordon Brown as a way of topping up low wages and reducing child poverty. 

At the moment, families earning less than £32,000 can receive tax credits - with the average payment amounting to £500 a month, or £6,340 a year.

Some 4.5 million families are in receipt of either working tax credits of child tax credits. 

Under the government's proposals more than 3 million families will lose around £1,300 a year.

The head of the respected Institute for Fiscal Studies Paul Johnson, appearing in front of the Commons Work and Pensions Select Committee this afternoon, rejected government claims that other measures - including a higher minimum wage and more free childcare - would compensate for families' loss of tax credits.

He said: 'It's clearly the case that the significant majority of tax credit claimants will be significantly worse off.

'It's obvious that the majority will be worse off.' 

It is unprecedented for the unelected House of Lords to block financial measures passed by MPs.

It has sparked warnings that the Queen could be dragged into the crisis – because she could be asked to create dozens of new Tory peers to give the government a majority to pass the measures.

But the Archbishop of York told peers they would be abrogating their responsibilities by approving regulations without having the full facts before them.

He warned against driving working families into the hands of 'loan sharks' by reducing their support. and said many low income households were still worse off than in 2008.

To cheers, the Bishop of Portsmouth, the Rt Rev Christopher Foster, added: 'These proposals are morally indefensible.

'It's clear to me and many others that these proposals blatantly threaten damage to the lives of millions of our fellow citizens.

'This must not be the way to achieve the Government's goal at a cost to those, who if we believe the rhetoric, the Government intends to encourage and support.

'To many in my diocese and beyond this seems punishing rather than encouragement.'

Warning of indebtedness and health problems among those worst hit by the cuts, the Bishop said he was 'appalled' by the proposals and urged ministers to think again.

Former Conservative chancellor of the exchequer Lord Lawson also criticised the way cuts to tax credits were being pushed through and has demanded changes.

'I am torn because I believe there are aspects to these measures which need to be reconsidered and indeed changed.

'The great harm, or a great deal of the harm, is at the lowest end and that is what needs to be looked at again. That is what concerns me.

'I think it is perfectly possible with tweaking it to take more from the upper end of the tax credit scale and less from the lower end of the tax credit scale,' Lord Lawson said.

Read more: http://www.dailymail.co.uk/news/article-3289711/Osborne-retreat-tax-credit-cuts-ministers-plead-Lords-not-throw-measures-crunch-vote-today.html#ixzz3phxGBqet