Media playback is unsupported on your device Media caption Iain Duncan Smith: "Labour spent taxpayers' money like drunks on a Friday night"

The government has won a crucial vote in Parliament on plans to limit annual increases in working-age benefits to 1% for the next three years.

MPs rejected a Labour bid to block the proposals by 328 votes to 262 after five hours of heated debate.

But four Liberal Democrat MPs joined Labour in voting against the proposals.

Labour argues that millions of low-income families will be worse off but ministers say benefits should not be going up at a faster rate than wages.

Benefits have historically risen in line with inflation and, without any change, would have been due to go up by 2.2% in April.

Benefits set to be capped Jobseeker's Allowance

Employment and Support Allowance

Income Support

Elements of housing benefit

Maternity allowance

Sick Pay, Maternity Pay, Paternity Pay, Adoption Pay

Couple and lone parent elements of working tax credits and the child element of the child tax credit

But the government says that with public sector pay rises capped at 1%, a similar limit should apply to working-age benefits such as jobseeker's allowance, employment and support allowance and income support as well as elements of working tax credits and child tax credit.

In a message on Twitter, Prime Minister David Cameron said: "The Commons vote to limit benefit rises to 1% while pay is only rising at 1% is fair. Labour have the wrong priorities."

The Lib Dem Business Secretary Vince Cable said the welfare budget could not be "insulated" from spending cuts that were needed to rebalance the public finances.

Benefit recipients, he suggested, had done "relatively well" in recent years in comparison to working people on low incomes, many of whom who have seen their wages frozen and incomes fall in real terms.

"It seemed fair to us to distribute some of this pain in a more equitable way," he told BBC News.

Four Lib Dem MPs - Sarah Teather, David Ward, Julian Huppert and John Leech - voted against the government while Charles Kennedy and Andrew George abstained on the second reading of the legislation needed to implement the three-year cap.

The debate has been portrayed as an argument over "skivers versus strivers". But others might say it was a debate about the nature of the welfare state.

A number of other MPs - including ministers Norman Baker and Lynne Featherstone and former cabinet minister Chris Huhne, did not take part in the vote.

Mr Leech, the MP for Manchester Withington, urged ministers to "take stock" and rethink the cap - saying it was unfair to equate a 1% limit on benefits worth less than £100 a week with a 1% pay rise for someone on a salary of £25,000 a year.

And Mr Kennedy, a former Lib Dem leader, tweeted that he was "looking now to work with like-minded Lib Dems to amend the bill in its later stages".

Legislation needed to implement the cap for 2013-2016 must be approved by the Commons and the Lords.

By approving the proposals at second reading on Tuesday by 324 votes to 268, MPs have ensured they come a step closer to becoming law.

While backing the changes, Mr Cable criticised the language used by some Conservatives in the debate over welfare, in which supporters of the cap have sought to ally themselves with "strivers" against those unwilling to work, describing it as "appalling stuff".

Media playback is unsupported on your device Media caption Labour MP David Miliband described the bill as "rancid"

Labour has accused the government of trying to pit unemployed people against the low-paid while former Foreign Secretary David Miliband, speaking in the Commons, called the proposals "rancid".

Shadow work and pensions secretary Liam Byrne said welfare spending had exceeded government forecasts by £14bn and ministers were opting to try and fill the hole by penalising working families rather than asking the wealthiest in society to pay more.

An "impact assessment" of the proposals published by the government suggested single parents would be most affected by the cap - losing £5 a week or about £250 over the three year period.

The majority of working age households in receipt of state support are likely be an average of £3 a week worse off.