PEERS told the Tories yesterday that they must water down partisan changes to party funding concealed within the Trade Union Bill.

A cross-party Lords committee rubbished the government’s claim that forcing trade unions to adopt an opt-in system for political funds would have no effect on the Labour Party.

Labour predicts that it could lose up to £1 million a year and the committee agreed that the party would face a “sizeable negative impact.”

The 12-strong committee supported the principle that union members should be required to opt in to the fund when they join.

But it went on to demand government concessions on some the worst excesses of the proposals.

Committee chairman Lord Burns said the compromise would “allow the government to fulfil its manifesto commitments while mitigating the worst impacts on the trade unions and the Labour Party.”

TUC general secretary Frances O’Grady said ministers must think again about the “serious questions” raised in the report.

“Union money is the most transparent in politics,” she said.

“The general public worry about the influence of wealthy individuals giving millions, not nurses and shopworkers giving a few pence a week.

“The government should now heed the advice of the committee.”

A government spokeswoman would say only that ministers were “considering” the report.

But the government faces a second defeat in the Lords, where the Tories do not have a majority, on the issue if it fails to make changes.

Labour, Liberal Democrat and cross-bench peers united in January to establish the committee against the wishes of the government.

Peers are due to debate the report next Wednesday, before voting on amendments a week later.

They could agree to back a compromise position agreed by a majority of the committee which would see an opt-in system for existing union members introduced in stages, but only as part of cross-party reforms to party funding.

Labour leader in the Lords Baroness Smith said: “With nothing being done to address big donations to the Conservative Party, I hope the report paves the way for a fair, reasonable and lasting agreement on party funding — in stark contrast to David Cameron’s partisan attack on Labour and the trade unions and, by extension, democracy itself.”

The 12 peers, who included four Tory donors, all agreed that:

The period of transition to an opt-in system for union political funds should be extended from three months to 12.

Union members should be allowed to opt in online, rather than by post as Conservative ministers have proposed.

Trade union members should only be required to opt into political fund contributions once, not every five years as the legislation demands at present.

The government should convene cross-party talks on political funding.