Shadow chancellor John McDonnell has insisted Labour will not "attack" George Osborne should the government reverse its cuts to tax credits, as the Chancellor was accused of "manufacturing a phoney constitutional crisis".
Meanwhile, No 10 revealed letters telling families they will lose out from cuts to the benefit - expected in December - look set to be delayed, and the policy may not be implemented in April, despite the Chancellor's determination to push ahead while compensating those likely to be hit.
Last night the House of Lords voted to hold up the introduction of the proposed cuts, which independent experts predict would cost three million low earning working families over £1,000.
The vote was a damaging blow to Osborne. In response, David Cameron has indicated he will move to clip the wings of the Lords when it comes to voting on financial matters.
Speaking in the Commons today, Osborne conceded he would now have present measures to mitigate the impact of the cuts as required by the Lords vote. "We will listen about how we make the transition to this lower welfare higher wage economy," he said.
And he hit out at the Lords for taking the "unprecedented" step of rejecting a financial matter. "The elected House of Commons is responsible for the tax and spend decisions that affect the people of this country," he said. "This House of Commons voted three times for the changes that were rejected by the House of Lords."
Osborne added: "We should have an elected House of Lords."
Lib Dem attempts to introduce an elected second chamber were torpedoed in the last parliament by Tory backbenchers.
McDonnell told MPs today the constitutional issue was a distraction. "For three million people out there who have done everything asked of them, bringing up their children, going to work, this is not a constitutional matter. They will lose £1,300 a year.
"Can I reassure the chancellor if he brings forward proposals to reverse the cuts to tax credits fairly and in full he will not be attacked by this side of the house indeed he will be applauded.
The shadow chancellor added: "But can he assure us that whatever proposals he brings forward he would not support any that an independent assessment demonstrates will cause any child to be forced live below the poverty line."
Labour MP Wes Streeting accused Osborne of "manufacturing a phoney constitutional crisis" in order to distract from the issue of cuts.
“Why won’t he put his toys back in the pram and appreciate he needs to go back to to the drawing board with his failed policy which hits working people the hardest,” he said.
But Tory MPs who had misgivings about the cuts to tax credits, including Andrew Tyrie, the chairman of the influential Treasury select committee, said the Lords had overstepped its authority.
He said: "Whatever our views in this House on the tax credit dispute, in overturning the settled will of the elected chamber the unelected lords have exercised the powers of chamber of parliament in the tax area where for at least 100 years it has been established that they have, and should have, only the legitimacy of a consultative assembly."
Meanwhile, a No 10 spokeswoman confirmed the Chancellor will continue to pursue a policy of tax credit reform and will detail his plans in the Autumn Statement next month. It is unclear whether £4.4 billion of savings will still come from tax credits when the Government makes a fresh attempt to force its plans through Parliament.
Asked if there was a possible delay to December tax credit letters, she said: "Clearly any reform to tax credit system would need to be in place and approved before letters detailing changes would go out.
"The Government stood and was elected on a mandate to deliver £12 billion in welfare savings and £4.4 billion will come from that.
"The Chancellor believes there is a way to achieve the goal of reforming tax credits and saving the money needed while at the same time helping out in the transition to these changes."
This morning, Chris Grayling the Tory Leader of the House of Commons, toured the broadcast studios and launched a series of fierce attacks on the House of Lords.
He claimed Labour and Lib Dem peers were "unhappy that they lost the election" and "decided they want to wreck the Government's programme".
Asked on Radio 4's Today programme whether up to 150 Tory peers could be introduced to re-balance the Lords, he said: "I don't think we're ruling anything in or out at this stage. We've only just started the work. I'd be reluctant to do really dramatic changes. But it really is for us to sort out the relationship between the Commons and the Lords."
He made clear the status quo was unlikely to remain: "I don't really see after yesterday we can say no change is needed."
Earlier in the show, senior Tory backbencher David Davis dismissed stuffing the Lords with Conservatives as "bullying politics".
"That's a ridiculous threat," said the MP, who warned the tax credits reform risked being "possibly a harmful thing for three million people".
He went on: "The public will be disgusted by it. They will review that action as a piece of bullying politics."
TAX CREDITS: THE IMPACT
Tax credits are welfare payments to families raising children and working people on low incomes.
More than three million families will lose an average of £1,300 a year from April
The cuts will deliver £4.4bn of the Chancellor’s planned welfare cuts by reducing the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850.
The Government says eight out of 10 would be "better off" overall from a package which also includes increases in the minimum wage for over-25s, rises in the income tax threshold and extended free childcare.