The Government suffered an embarrassing defeat last night over its plans to allow a new generation of casinos.

The House of Lords, led by the Archbishop of Canterbury, rejected by 123 to 120 proposals to introduce 17 new casino, including a supercasino in Manchester.

The surprise defeat, master-minded by the Liberal Democrats and Bishops, sent the Government back to the drawing board and could jeopardise Manchester’s chances of ever getting a supercasino.

The defeat came after almost half the Labour peers abstained, with 105 turning out to support the government — a personal blow for the authority of Tessa Jowell, the Culture Secretary.

The vast majority of Tory peers also abstained, with only 30 of 200 siding with the Liberal Democrat attempts to bring down the plans. All 49 Liberal Democrat peers backed the party’s wrecking attempt.

Moments after the Lords defeat was announced, Ms Jowell’s plans were approved in the Commons. MPs backed the proposals by 274 votes to 250, cutting the Government’s majority from 67 to 24.

The Lords vote does not necessarily mean the end of Manchester’s chances of hosting a supercasino. Ms Jowell said ministers would want to reflect on the vote and come back to the “elected” Commons in due course with proposals on how “we will take this policy forward”.

Ms Jowell has repeatedly stressed the importance of maintaining all of the 17 locations selected by the Casino Advisory Panel.

One of the most powerful speeches in the Lords came from the Archbishop of Canterbury, Dr Rowan Williams. He accused the Government of allowing the gambling industry to wrap up the case for more casinos with the separate question of how to regenerate poor areas.

“My objection rather is that the sleight of hand by the whole business of the gambling industry has become coupled with the regeneration theme, in ways which I find quite baffling,” Dr Williams told peers.

Too little attention had been given to the addictive effects of gambling and simply studying the “social impact” of new casinos, as the Government proposed, did not take this seriously enough.

Dr Williams added: “Addiction is the nursery of crime as well as of poverty.”

The peers voted for an amendment, tabled by Lord Clement, Jones, the Liberal Democrat, which threw out the Government proposals and called for the casino plans to be considered by a Joint Committee of MPs and Peers.

The defeat was achieved largely without the support of the Conservatives, who decided not to back the wrecking amendment on the ground that they had killed killed secondary legislation in this way only twice since 1945. They were understood to fear a backlash from northern cities that were promised a casino by the Casino Advisory Panel.

Earlier, Ms Jowell tried to head off a backbench rebellion by accepting an amendment tabled by Labour peer Baroness Golding, setting up a new joint committee of MPs and peers to look at the lessons to be learnt from the casino selection process.

But Conservatives and Liberal Democrats cried foul after Ms Jowell realised such a panel would not be able to alter to site the supercasino in Manchester or other locations.

A government source admitted that this tactic may have contributed to the defeat.

Instead the Joint Committee will consider how best to make decisions on future casino locations, and would be able to nominate Blackpool. However this is dependent on a future government agreeing to increase the number of supercasinos, and Gordon Brown has firmly indicated he has no intention of allowing this.

To coincide with the debate, the Department for Communities and Local Government also announced a regeneration task force for Blackpool to look at ways of improving the area.

Ms Jowell opened the debate in the Commons claiming that the regeneration of many poor areas dependent on the order being approved by MPs.

The vote

The Lords

To reject casino powers

For 123 Lib Dem 49

Conservative 30

Crossbench 27

Labour 12

Bishops 3

Other 2

Against 120

Labour 105

Crossbench 9

Conservative 6

The Commons To pass casino powers

For 274

Against 250

Majority 24

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