Osborne vows to ease the pain but Lords defeats raise 'constitutional issues'
Help for claimants hit by proposed tax credits cuts will be set out in the Autumn Statement, George Osborne has announced after peers inflicted a crushing blow on the Government over the move.
The Chancellor bowed to pressure to put in place transitional measures following a double defeat in the House of Lords over the deeply divisive welfare reforms.
Mr Osborne criticised "unelected" Labour and Liberal Democrat peers for blocking the government on a financial measure and David Cameron is launching a "rapid review" into the constitutional fallout of the bruising result.
"David Cameron and I are clear that this raises constitutional issues that need to be dealt with," the Chancellor said.
"However, it has happened, and now we must address the consequences of that. I said I would listen and that's precisely that I intend to do.
"I believe we can achieve the same goal of reforming tax credits, saving the money we need to save to secure our economy, while at the same time helping in the transition.
"That is what I intend to do at the Autumn Statement. I am determined to deliver that lower welfare, higher wage economy that we were elected to deliver and the British people want to see."
Peers defied calls to respect a century-old convention that the unelected upper chamber does not block financial measures approved by the Commons, sparking claims of a "constitutional outrage".
A No10 spokesman said: "The Prime Minister is determined we will address this constitutional issue. A convention exists and it has been broken. He has asked for a rapid review to see how it can be put back in place."
Mr Osborne's political reputation has been left badly dented after he failed to see off the drubbing in the Lords despite stark warnings from across his own party in recent weeks about the impact the measures would have.
Labour's John McDonnell said people had been "shocked" over the way the Chancellor had pushed ahead with the changes, which will slash £4.4 billion from working tax credits and child tax credits for some of the country's poorest households.
The shadow chancellor said the result showed it was time for a "full and fair reversal" of the policy.
"George Osborne has got to think again," he told Sky News. "He has been defeated twice in the House of Lords tonight but there are a large number of Conservative MPs as well who have been telling him very, very clearly he has got to think again on this one.
"I think now he is going to have to come back with further proposals."
Peers backed a motion by a majority of 30 delaying the cuts until the Government responds to analysis of their impact by the Institute for Fiscal Studies and considers "mitigating action"
Minutes later the Government was defeated a second time, this time by a majority 17, on a Labour motion to delay the cuts until ministers come forward with "full transitional protection" for those affected for at least three years.
Conservative MP Michael Ellis said the result was a "constitutional outrage" as senior figures warned of serious repercussions.
But critics of the reforms defended the action taken by peer and called on the Chancellor to "grasp" the chance to redraw the plans.
Unison general secretary Dave Prentis said: "Peers have now given the Government a chance to think again, and the Chancellor should grasp that opportunity with both hands."
Liberal Democrat Leader Tim Farron said the Government had been "forced into an embarrassing climb down".
"George Osborne must now go back to the drawing board and come back with plans to balance the books that don't simply attack working families who are already struggling to get by," he said.
Labour imposed a three-line whip on the House of Lords votes and reported the presence of Tories not seen in the chamber for years.
The party's former work and pensions minister, Baroness Hollis of Heigham, gave an impassioned speech warning that three million families faced "letters at Christmas telling them, on average, they will lose around £1,300 a year".
"Those families believed us when we all said work was the best route out of poverty, that work would always pay," she said.
In a mark of the highly contentious nature of the cuts, former Conservative chancellor Lord Lawson spoke out in favour of reform.
"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.
Mr Osborne later appeared on the Commons frontbench during a debate on the Finance Bill where he railed against a Labour MP over the defeat.
After Rob Marris criticised the Government for attempting to push through the reforms using secondary legislation, the Chancellor shouted back: "You used the Lords".