Peers inflicted a setback on government plans to cut weekly housing benefit allowances to social housing tenants with spare bedrooms.

In debating the welfare reform bill, members of the House of Lords threw out by 258 to 190 proposals to dock benefits paid to people with one or more spare bedrooms.

Under government plans from April 2013 people with one spare bedroom could see a 14% reduction in weekly housing benefit payments – an average cut of £12.  Those with two or more spare bedrooms would face a 25% reduction – an average of £22 per week.

Former social security minister Lord Newton joined 13 Liberal Democrat peers in voting against the ‘under-occupation' measures ministers calculate will contribute a quarter of total £2bn housing benefit savings from annual £13bn rental costs covering some 3.3 million people.

Ahead of the vote, current welfare minister Lord Freud pledged £30m extra discretionary funding for councils to help around 40,000 households.  The cash pot is targeted at disabled people living in specially adapted accommodation and foster carers between placements.

Lord Freud told peers the size criteria measure would only affect ‘working-aged housing benefit claimants in the social rented sector who are under-occupying their accommodation.'

‘In England approximately 420,000 households in the social rented sector under-occupy their accommodation by two bedrooms or more while over a quarter of a million households are overcrowded,' he added.

It is expected the vote will be overturned when the Bill returns to the House of Commons in the New Year.