14 December 2011 By Carl Brown, Inside Housing

The government has been defeated over controversial plans for a ‘bedroom tax’ for social housing tenants deemed to be underoccupying their homes.

Peers on Wednesday voted by 258 votes to 190 to accept an amendment to the Welfare Reform Bill from crossbench peer Lord Richard Best to water down the proposals.

The government had been hoping to cut £500 million a year from the housing benefit bill by introducing an average cut of £14 a week for working age households in social housing with one spare room or more.

Lord Best’s amendment allows tenants to receive full housing benefit if they have no more than one spare room or if no other suitable alternative accommodation is available.

Peers feared that the government’s stance would unfairly penalise tenants as there are not enough available properties for tenants to move into and that rent arrears would increase.

Lord Best, speaking in the debate, said: ‘Let’s not go down the unchartered road that is likely to add to the hardship of hundreds of thousands of our poorest citizens.’

Baroness Patricia Hollis said the government was expecting 85 per cent of tenants to stay and take the cut, a situation described by Baroness Hollis as ‘morally wrong and not decent’.

Other peers voiced concerns that the bill would unfairly penalise foster carers, families with two teenagers of the same sex and people who need an extra room for health reasons.

Lord Freud, the welfare reform minister, told peers that the ‘fiscal case driving the measure must not be ‘underestimated.’ He added: ‘The government believes it is reasonable to ask for some contribution when there is some degree of underoccupation.’

Lord Freud earlier announced £30 million of extra funding through discretionary housing payments, which are administered through councils on a case-by-case basis to enable disabled tenants who have had their homes significantly adapted to stay and to help families who foster children.

But it was not enough to prevent the bill from being amended.

The House of Commons will decide whether to accept the amendment at a later date.