Labour MPs joined forces with Liberal Democrats to help inflict a defeat on the Government over the “bedroom tax”.
It follows a Lib Dem u-turn over the controversial benefit cut, led by North East Parliamentary candidate Julie Pörksen.
Ms Pörksen, due to stand for the Lib Dems in Berwick at the next election, demanded changes to the policy at the party’s annual conference last year.
Lib Dem activists backed her call to ensure tenants only had their housing benefit cut if they had actually been offered a smaller home to move in to.
And this led to a u-turn by the party leadership, which had previously defended the policy.
The House of Commons has now given a Second Reading to the Affordable Homes Bill, proposed by Liberal Democrats, which would enact many of the changes backed by the party conference.
Conservatives opposed the Bill, but the Government was defeated by 306 votes to 231 when Liberal Democrats and Labour MPs joined forces - even though the Lib Dems are part of the Coalition government.
However, Labour say they would go further and axe the bedroom tax entirely.
At the moment, housing benefit can be cut for up to 25% for tenants in council housing or housing association properties who are considered to have a spare bedroom.
The Government argues that the measure, which critics call a bedroom tax and Ministers call ending the “spare room subsidy”, is designed to encourage people to move out of large homes they don’t need so they are available for families who actually need the space.
But opponents of the policy argue that most of the tenants affected can’t move out even if they want to, because there aren’t enough smaller homes available.
The new law would exempt anyone who has not received a “reasonable offer of alternative accommodation”. Many people with disabilities would also be exempt.
Receiving a Second Reading in the Commons is a key step towards changing the law but the measure will now be considered by a Commons committee.
Northumberland Lib Dem MP Sir Alan Beith, the current MP for Berwick, was among those who voted for the change.
Ms Pörksen said: “I am pleased that the Liberal Democrats in government are taking action on the unfair changes to housing benefit. I believe that the welfare state should have people at the very heart of its policies.”
Sharon Hodgson, Labour MP for Washington and Sunderland West, backed the Bill, She said: “I’ve had dozens of constituents come to my surgeries or write to me over the last couple of years with heart-breaking stories about how much hardship this terrible policy is causing them.”
Labour MP Catherine McKinnell, MP for Newcastle North, also backed the Bill. She said: “The Liberal Democrats have repeatedly joined the Tories to put and keep the Bedroom Tax in place . . . yet today the Lib Dems joined Labour in voting against their own policy in Parliament.”
Labour would “get rid of the Bedroom Tax entirely”, she said.
Some Tories were angry at what they saw as betrayal by the Liberal Democrats. Yorkshire MP Philip Davies said opponents of the coalition had always known the Lib Dems were “devious and untrustworthy”, adding: “This vote today on the Bill shows the coalition Government has come to an end.”