MPs have voted to break the link between welfare benefits and inflation.
The House of Commons voted by 324 to 268 in favour of a Bill to place a 1% cap on benefit upratings over the next three years, effectively imposing a real-terms cut on most working-age benefits and tax credits.
Some four Liberal Democrats, including former minister Sarah Teather, rebelled against their leadership to vote against the below-inflation cap, while former leader Charles Kennedy and backbencher Andrew George voted in both lobbies — the traditional way of registering an abstention.
The revolt was not enough to prevent the Welfare Benefits Uprating Bill from clearing the first hurdle in its passage through Parliament.
A Labour bid to block the Bill was also voted down.
In a message on Twitter, Prime Minister David Cameron said: “The Commons vote to limit benefit rises to 1% while pay is only rising at 1% is fair. Labour have the wrong priorities.”
The cap, announced by Chancellor George Osborne in his Autumn Statement last year, is aimed at slashing £5bn from the welfare bill over the next five years.
Work and Pensions Secretary Iain Duncan Smith told MPs that benefit levels have grown by 20% since the beginning of the recession, while incomes for those in work have risen by just 10%.
“What we are trying to do over the next few years is get that back to a fair settlement and then eventually it will go back onto inflation,” said Mr Duncan Smith.
Labour branded the move a “strivers' tax”, pointing out that almost 70% of those who will lose out are in employment, many of them low-paid.
Shadow work and pensions secretary Liam Byrne told MPs: “Welfare to work will not work without jobs.
“This Bill does not create a single job, it creates a heck of a mess and it asks Britain's working families to clear it up.”
Charities also hit out at the Bill.
Barnardo's chief executive Anne Marie Carrie said: “By voting to break the link between benefits and inflation, MPs have risked condemning children in Britain's poorest families to growing up stuck in the poverty trap, as their parents struggle to cover basic costs of living.
“It makes it effectively impossible for the UK's poorest parents to ‘strive' their way out of poverty, as high childcare costs eat up the wages they earn and leave families without an income they can survive on, let alone thrive on.”
Oxfam's director of UK poverty, Chris Johnes, said: “Yet again, working-age benefits, which poor families rely upon, are bearing the brunt of the Government's cuts.
“The benefits budget seems to be the child constantly picked on, whose unpopularity makes it easy fodder for the axe.
“Already, compared to average earnings, benefits are at their lowest levels since the welfare state was founded. On top of this, inequality will deepen as the proposed changes in the Bill are undoubtedly going to hit poor families hardest.”
Matthew Reed, chief executive of the Children's Society, said: “This Bill will punish millions of children and families already struggling to make ends meet.
“Families already struggling to provide their children with food or a winter coat, or heat their homes are being pushed closer to the brink.
Labour former foreign secretary David Miliband described the Bill as “rancid” and claimed it was motivated by party politics.
“The enemy within is not the unemployed, the enemy within is unemployment.
But Mr Duncan Smith accused the last Labour administration of “spending taxpayers' money like drunks on a Friday night” and “buying votes” by increasing handouts.
The benefits cap will affect millions of people. New mothers will be up to £4 a week worse off as a result of the decision not to uprate statutory maternity pay in line with inflation.
The poorest 10% of households will lose £4 per week while the wealthiest 10% of households will lose £2 a week. Around 4.4 million couples with children will lose £3 a week.