Lord Strathclyde to chair review of Commons-Lords powers after tax credits vote
A review into how MPs can be given the "decisive role" over key financial decisions has been set up following the Government's humiliating Lords defeat over plans to cut tax credits.
Chancellor George Osborne has insisted he will press ahead with changes to reduce the welfare bill, despite the double defeat in the House of Lords.
David Cameron ordered a "rapid review" of the relationship between the two Houses of Parliament which will be chaired by former Lords leader Lord Strathclyde.
A Number 10 spokesman said: "The Government is setting up a review to examine how to protect the ability of elected Governments to secure their business in Parliament.
"The review would consider in particular how to secure the decisive role of the elected House of Commons in relation to (i) its primacy on financial matters; and (ii) secondary legislation.
"The review will be led by Lord Strathclyde, supported by a small panel of experts."
The review of the Lords' powers came as Mr Osborne warned that the defeat of his tax credits plans raised "clear constitutional issues which we will deal with".
Mr Osborne received a noisy reception as he faced MPs for the first time after peers backed two motions on Monday which delay the £4.4 billion cuts in working tax credit and child tax credit.
Speaking at Treasury questions in the House of Commons, Mr Osborne confirmed that he will announce plans to ease the transition to lower tax credits in next month's Autumn Statement.
But he also said the Lords vote breached the century-old convention that the Upper House does not block financial decisions made by the Commons.
Mr Osborne told MPs: "Last night, unelected Labour and Liberal peers voted down the financial measures on tax credits approved by this elected House of Commons. That raises clear constitutional issues which we will deal with.
"We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. I will set out the plans in the Autumn Statement.
"We remain as determined as ever to build the low-tax, low-welfare, high-wage economy that Britain needs and the British people want."
Shadow chancellor John McDonnell told Mr Osborne that if he now came forward with measures to "reverse the cuts to tax credits fairly and in full", he would be applauded by Labour.
He urged the Chancellor to avoid the need for tax credit cuts by reversing inheritance tax breaks for "the wealthiest few" and scaling back the size of surplus he is aiming to run by the end of the Parliament.
He added: "Can he assure us that whatever proposals he brings forward, he will not support any that an independent assessment demonstrates will cause any child to be forced to live below the poverty line?"
The Chancellor said he would listen to any proposals Mr McDonnell had "to help in the transition" to lower tax credits, but added: "If he is again promoting uncapped welfare and unlimited borrowing, then I'm afraid I don't think the British people are going to listen to him."
Commons Leader Chris Grayling earlier said that nothing had been ruled out in the review on constitutional arrangements governing the two Houses of Parliament ordered by Mr Cameron - including the possibility of creating 100 or more new Tory peers to secure a majority in the Upper House.
Mr Grayling said Monday's votes reflected unelected Labour and Liberal Democrat peers deciding to use their weight in the second chamber to try to "wreck the Government's programme".
"There will have to be change. Of course there will have to be change," he told the BBC Radio 4 Today programme. "I don't think we are ruling anything in or out at this stage.
"My view is I would be reluctant to see us do really dramatic changes, but it is really a matter of trying to sort out the relationship between the Commons and the Lords, if the Lords is intent on wrecking the manifesto of the elected Government.
"If it is their intention to tear up the rules that have applied for half a century and say 'We are happy to throw out the programme of the elected Government', then of course we have got to address that."
The Lords defeat means tax credit recipients will now face a longer wait to know the impact the changes will have on their finances.
The Prime Minister's spokeswoman acknowledged the letters informing recipients their tax credits were to be reduced - which had been expected to go out around the end of the year - could not be issued until the changes to the system were in place.
"Clearly any reform to the tax credit system would need to be in place before the letters detailing the changes go out," she said.
Shadow Lords leader Baroness Smith of Basildon said the review was a "massive over-reaction" from a Prime Minister who "clearly resents any challenge or meaningful scrutiny".
She said: "The House of Lords rejected George Osborne's tax credit cuts and said he should think again.
"If this is a further attempt to try to bully Lords, the Government underestimates how seriously peers of all parties and none take their constitutional responsibilities.
"We would welcome a serious review of the House and have already called for a constitutional convention. But any review should be in the public interest and not for narrow partisan benefit."