The government is defeated in the House of Lords on its plans to cap the amount non-working households receive in benefits. Channel 4 News analyses the plans.
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An amendment tabled by the Bishop of Ripon and Leeds, the Rt Rev John Packer, calling for child benefit to be excluded from the cap, was passed by 252 votes to 237, a majority of 15.
Before the vote, the government said if the amendment was carried, it would overturn it in the Commons
A Labour amendment to exempt families threatened by homelessness from the cap was rejected by 250 votes to 222, a majority of 28. But 17 Liberal Democrats, coalition partners with the Conservatives, supported it.
The Lords was debating the government's plans to ensure that a workless household cannot claim more than £26,000 a year in benefits - the average income after tax of a working family. The cap is equivalent to £500 a week for people with children.
Labour backed Bishop Packer's amendment, despite being in favour of a cap in principle.
Bishop Packer said the cap "failed to differentiate between households with children and those without", adding: "This cap is not simply targeted at wealthy families living in large houses. It will damage those who have to pay high rents because often that rent has increased substantially in the course of their occupancy of that house."
Opposition spokesman Lord McKenzie of Luton said the cap "dramatically increased the prospects" of people becoming homeless and could force councils to re-house them at great expense. He said the emotional and physical impact of uprooting families, and children in particular, from their local communities would be "traumatic".
But Work and Pensions Minister Lord Freud defended the cap, saying households should not be able to receive more in benefits than the average family earned from work. "People on benefits should face the same choices as working families, including where they can afford to live," he said.
Lord Freud promised that the cap, to be introduced in 2013, would be subject to an "organised", one-year transition period and said Labour's "wrecking amendment" would be "unworkable" and would mean that anyone with children would not be subject to the cap.
Former Conservative social security secretary, Lord Fowler, said: "The cap that is being set is £26,000 per annum, which is the equal of £35,000 a year before tax, which is not an ungenerous limit and many people in this country would regard it in that way.
"I don't think we should leave a situation where beneficiaries living in housing they could not afford in work will never be able to get back into work because of that particular situation."
Benefits cap Q&A
Critics say some people on benefits will not be able to afford to live in their homes any longer because housing benefit will not cover their rent in expensive parts of the country like London and the south east.
They say these people will be made homeless as a result. The suggestion is not that they will be thrown on to the street, but that they will have to be rehoused in temporary accommodation that could be more expensive than their current rent.
The benefits cap explained - read more from Channel 4 News
The Department of Work and Pensions says 67,000 households will have their benefits reduced in 2013-14, losing £83 a week on average, while 75,000 will see a reduction in 2014-15.
The department says its policies will have most effect on large families living in areas where rents are high. Its modelling assumes 54 per cent of those affected live in London, while under 5 per cent are in Scotland and under 3 per cent in Wales.
Lord Ashdown, the former Liberal Democrat leader, told peers that while he supported a cap in principle, he was unhappy with what the government was proposing. He threatened to vote with Labour.
Current leader Nick Clegg said he backed the changes and suggested there was some scope for softening the impact of the changes through "transitional arrangements" around the introduction of the cap.
Prime Minister David Cameron defended the government's plans. He said: "There does need to be a cap. The idea that we have at the moment some people, particularly in the London area, getting housing benefit of £20,000, £30,000 a year, living in houses that the people who are paying their taxes to pay for that housing benefit couldn't themselves afford, I think is wrong. It's time for some basic fairness and a welfare cap of £26,000 I think is fair."
Mr Cameron denied the cap would push children into poverty.
"The way children suffer today, there are far too many children in households where no-one is working, and one of the reasons why in some households no-one is working is because welfare has become so available. So I think we need to say to people, if you can work you should work and we'll help you find work."
Work and Pensions Secretary Iain Duncan Smith said the measures would save the taxpayer £600m and no-one would be made homeless as a result.
But Employment Minister Chris Grayling told BBC Radio 5 Live that some people would be forced to leave their homes. "There certainly will be people who have to move house as a result of this, who have to move to a part of town they can afford to live in, but surely that is right," he said.
The government has already been defeated three times by peers debating its welfare reform bill.