In the biggest Labour revolt since Mr Blair came to power two years ago, 65 MPs voted against the Government, while the rebels claimed another 14 had abstained. Another two rebels acted as tellers.
Ministers were shocked by the scale of the opposition, which dwarfed the stand by 47 Labour MPs against cuts in state benefits for single parents in 1997.
Last night's vote revealed a growing confidence by Labour MPs to challenge the Government. Ministers said yesterday they fear an even bigger rebellion over the Immigration and Asylum Bill.
Many Labour MPs, including several loyalists elected for the first time in 1997, will oppose Jack Straw's plan to replace benefits with vouchers for food and a cash payment for living expenses, excluding accommodation, of pounds 1 a day for adults, plus 50p for children.
Although the Government survived last night's challenge, ministers are likely to be forced to water down their plans to save pounds 700m by means- testing invalidity benefits for new claimants.
The scale of the revolt will encourage the House of Lords to reject the Welfare Reform and Pensions Bill. A defeat in the upper house looked almost certain after Lord Ashley of Stoke, the disabled rights campaigner and Labour peer, announced he would table amendments.
"This is a devastating result against the Government," Lord Ashley said. "The Government has refused to listen to its critics in the House of Commons. It may have to listen to them in the House of Lords."
The rebel MPs were confident of ultimate victory after Alistair Darling, the Social Security Secretary, hinted at concessions to limit the benefits cuts for disabled people receiving occupational pensions.
If the Government is defeated in the Lords, it would have to overturn the Lords' amendments by sending the Bill back to the Commons. The Labour critics believe they could then muster an even bigger rebellion than they managed last night, forcing ministers to back down.
The rebels were jubilant at their show of strength and claimed a moral victory, even though their amendment was defeated by 310 votes to 270.
Roger Berry, secretary of the all-party disablement group, appealed to the Lords to defeat the measure. "I very much hope the Bill comes back from the Lords in a form in which we can support it," he said.
Lynne Jones, MP for Birmingham Selly Oak, said Mr Darling's concessions were a "good sign" but insisted they would not have been offered without the rebellion. "I hope they will now be made more concrete," she said.
Although ministers cited the opposition from Labour MPs as evidence that Mr Blair was prepared to take "tough decisions" to reform the pounds 100bn- a-year welfare budget, they were privately taken aback.
The Government had tried to limit the rebellion by delaying the vote, but the critics stood firm despite two days of arm-twisting by the whips. Some MPs said waverers had been warned they would never be made a minister and could even be deselected. Despite the concessions floated by Mr Darling, cabinet ministers insisted that Mr Blair would not abandon his push to modernise the welfare state. "There will always be a hard core of Labour MPs who will oppose any change; we will press on," one said.
However, the Labour rebels included Frank Field, the former welfare reform minister, who condemned Labour for adopting the "deeply corrupting" means tests brought in by the Tories, and Tom Clarke, Labour spokesman on the disabled before the election, who voted against the party for the first time in 16 years as an MP.
Mr Darling said later the Government would look at "constructive amendments" by the Lords but insisted: "We are determined to press ahead with our programme of welfare reform. We are targeting resources on those people who need it most, such as the severely disabled."
Parliament, page 8
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