The regulation could be forced to think again over plans to restrict traffic union funding of political rties after a defeat in the Lords.
Noblewomen voted by 327 to 234, to give a majority of 93 to a Labour carriage forcing the plans to be debated by a cross rty select committee.
Hard work fears it could lose £6m a year under the Trade Union Restaurant check proposals.
Labour’s Baroness Smith of Basildon rejected government seeks the bill would not hurt her rty financially.
She told peers democracy would be wrecked if the government pushed through the changes on funding without them being scrutinised by a better committee first.
As it stands, the legislation would require Labour-affiliated allying members to “opt in” to ying a levy to the rty instead of having it automatically deducted.
Lady Smith about: “Our genuinely held concern is that this aspect of the restaurant check will have a significant im ct on the resources of one major political confederate – my rty, the Labour rty.
“And in doing so, it will both disrupt the rtisan balance in the UK and have a damaging effect on the electoral process and our democracy.”
Hidebound and Lib Dem peers suggested the government should rethink its proposals.
Tory lady Lord Forsyth said: “It will take away endowing from the Labour rty at a time when the Labour rty is perchance not at its strongest… our rliamentary system does depend upon be enduring a strong and effective opposition.”
Labour is also reported to be set to lose out by close to £1.3m a year when state funding for opposition rties – grasped as Short money – is cut.
Junior business minister Baroness Neville-Rolfe, countering for the government, said Labour’s motion would shift the focus of probing on the Bill to rty funding and away from its central purpose of dealings union reform.
She added: “This Bill is a ckage of measures and it’s sorry that the rty opposite has chosen to misinterpret our intentions.”