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Government's welfare reforms blocked by peers

LONDON (Reuters) - Chancellor George Osborne’s flagship welfare reforms were blocked by parliament’s unelected upper chamber on Monday, dealing a blow to the Conservative government and setting the stage for a bitter constitutional conflict.

Britain's Chancellor of the Exchequer George Osborne arrives to deliver his keynote speech at the annual Conservative Party Conference in Manchester, Britain October 5, 2015. REUTERS/Suzanne Plunkett

The House of Lords overturned long-standing political convention by voting to reject a financial matter, opposing planned changes to tax credits which supplement the income of those on low pay.

The reforms were a key component of Osborne’s plan to wipe out Britain’s budget deficit by 2020, and the defeat will likely force an embarrassing re-think - potentially damaging his credentials as a successor to Prime Minister David Cameron.

Designed to reduce the annual welfare bill by around 4.4 billion pounds, the changes have been widely criticised by those who say they will penalise working families - including by some Conservative lawmakers.

Peers backed two motions to delay the governments plans, voting 307 to 277 in favour of one which required the government to conduct an independent report on the impact of the cuts before the issue is brought back to the Lords.

They also voted 289 to 272 in favour of requiring the government to put in place a scheme of transitional protection for at least three years for those affected by the cuts.

“The government insists there is no alternative to these cuts... but actually, my Lords, there is,” said Patricia Hollis, one of the peers who proposed the delay.

“We can and should offer transitional protection to existing families who count on tax credits, single parent, the self-employed ... families with disabled children and carers.”

The Conservatives have a majority in the elected 650-seat lower chamber, the House of Commons, but not in the Lords. The government has criticised the Lords for acting, as they say, outside its remit as a ‘revising chamber’ by proposing the votes.

Speaking ahead of the vote, House of Lords leader Tina Stowell said blocking the reforms would challenge “a clear and unequivocal decision” made by the elected Commons.

The government says the effects of the reforms would be mitigated by other policies, such as a planned increase in the minimum wage for many workers. But independent studies have shown many of the poorest will still face a net loss of income.

Osborne announced the changes to the tax credit system in a July budget two months after the Conservatives won a surprise election victory having campaigned on a promise to shrink state spending and run a fiscal surplus.

But public opinion has turned against Osborne’s tax credit reforms. An opinion poll on Sunday showed 46 percent thought the cuts were unfair, while 28 percent who said they were fair.

POWER STRUGGLE

The defeat on such a flagship policy is also a blow to Osborne, who is regarded as frontrunner to take over the leadership of the party when Cameron steps down before a 2020 election.

Having refused to bow to pressure to water down or stagger the reforms, he is now expected to look at ways to mitigate the impact of the cuts before a planned budget update on Nov. 25.

The vote also tees up a power struggle between the Lords and the directly-elected Commons, that could reignite calls for a radical overhaul of the lawmaking process.

One Conservative aide said that by defying warnings not to break convention, the Lords had given the government cause to “do something quite substantial” in return.

“It is a very serious clash indeed,” Vernon Bogdanor, Research Professor at the Institute for Contemporary British History at King’s College London, told the BBC. He said the vote challenged the non-legal rules regulating the two houses.

One option open to Cameron would be to use his right to appoint members to the Lords to flood it with sympathetic members. Any such move would be opposed by those who argue the chamber is undemocratic and already too large.

The Lords is already largely made up political appointees recruited by successive governments, many of whom are entitled to serve life terms. With more than 800 eligible members it is the world’s second-largest legislative body after China’s National People’s Congress.

Additional reporting by Stephen Addison and Kylie MacLellan; editing by Ralph Boulton

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