THE government faces its first major setback over the Trade Union Bill in the Lords today, with peers uniting across the benches in a bid to defeat partisan Tory changes to party funding.

Labour has tabled a motion arguing that the effect of the proposals, which could slash the party’s income by £6 million a year, should be considered by a select committee.

Shadow leader of the upper house Angela Smith will argue  that a committee could “take an independent view away from the heat of party-political debate in the Lords chamber.”

The government is unlikely to accept the proposal, but, unlike in the Commons, it does not have a majority in the Lords.

Labour is prepared to push the motion to a vote and is confident of winning support from Liberal Democrat and cross-bench peers to defeat the Tories.

They include crossbencher Lord Bew, chairman of the committee on standards in public life, who spoke out against the Conservatives’ partisan party-funding plans during last week’s Lords debate on the Trade Union Bill.

He said it was “not in the spirit” of the committee’s latest report on party funding to target only one party.

While it advocated an opt-in system for trade union political levy payers, it also called for a £10,000 cap on private donations, which would drastically reduce Tory funding.

Both would be replaced by public funding of political parties based on their electoral performance.

The Electoral Reform Society (ERS) also backed Labour’s motion last night, saying that the Trade Union Bill flies in the face of the convention that political funding rules are determined in a cross-party way.

Chief executive Katie Ghose said: “By targeting Labour and not tackling the issue in the round, the government is risking decades of parties indulging in tit-for-tat raids on each other’s sources of funds.

“We need all parties to get around the table and deal with this once and for all. There is no other way of finding a sustainable solution and avoiding accusations of constitutional gerrymandering.”

Paul Kenny, who chairs Unions Together, the link organisation between the trade unions and the Labour Party, said: “Since the 1940s, how politics is funded in the UK has been subject to a bipartisan approach.

“Unilaterally, the Tories have torn up that approach and, if the Trade Union Bill becomes law, it will trigger a financial crisis for the Labour Party affecting its structure, staffing and ability to fight elections.”

ERS polling found 77 per cent of people believe big donors have too much influence on all political parties, with 57 per cent supporting state funding of parties.