George Osborne and David Cameron to face questions on Lords tax credits defeats

George Osborne will address Tory MPs today following the humiliating defeat of his plans to cut tax credits as work began on a review to restrict the ability of the Lords to block further Government measures.

The Chancellor will attend the backbench Conservative 1922 committee, while David Cameron is also likely to be challenged about the Lords defeat and the Government's response to it at Prime Minister's Questions.

Labour has accused Mr Cameron of over-reacting to the Lords reversal by setting up the review aimed at curbing the power of peers, claiming he was attempting to "bully" the Upper Chamber.

Former Cabinet minister Lord Strathclyde will lead the work examining how MPs can be given the "decisive role" over key financial decisions and measures contained in secondary legislation.

A Number 10 spokesman said: "The Government is setting up a review to examine how to protect the ability of elected governments to secure their business in Parliament.

"The review would consider in particular how to secure the decisive role of the elected House of Commons in relation to (i) its primacy on financial matters; and (ii) secondary legislation."

Shadow Lords leader Baroness Smith of Basildon said the review was a "massive over-reaction" from a Prime Minister who "clearly resents any challenge or meaningful scrutiny".

She said: "The House of Lords rejected George Osborne's tax credit cuts and said he should think again.

"If this is a further attempt to try to bully Lords, the Government underestimates how seriously peers of all parties and none take their constitutional responsibilities.

"We would welcome a serious review of the House and have already called for a constitutional convention. But any review should be in the public interest and not for narrow partisan benefit."

The launch of the review came after Mr Osborne warned that the defeat of his tax credits plans raised "clear constitutional issues which we will deal with."

Peers backed two motions on Monday which delay the £4.4 billion cuts, despite usually not overruling the Commons on matters relating to the budget.

Speaking at Treasury questions in the House of Commons, Mr Osborne confirmed that he will announce plans to ease the transition to lower tax credits in next month's Autumn Statement.

But he also said the Lords vote breached the century-old convention that the Upper House does not block financial decisions made by the Commons.

Mr Osborne told MPs: "Unelected Labour and Liberal peers voted down the financial measures on tax credits approved by this elected House of Commons. That raises clear constitutional issues which we will deal with.

"We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. I will set out the plans in the Autumn Statement.

"We remain as determined as ever to build the low-tax, low-welfare, high-wage economy that Britain needs and the British people want."

The Lords defeat means tax credit recipients will now face a longer wait to know the impact the changes will have on their finances.

The Prime Minister's spokeswoman acknowledged the letters informing recipients their tax credits were to be reduced - which had been expected to go out around the end of the year - could not be issued until the changes to the system were in place.

"Clearly any reform to the tax credit system would need to be in place before the letters detailing the changes go out," she said.

Following Prime Minister's Questions, Mr Cameron will head to Iceland for a meeting of the Northern Future Forum countries, where there will be a focus on the creative industries and public service innovation.

He will also use the meeting to press his case for European Union reform with the leaders of fellow EU member states taking part in the gathering.