MPs and peers are set to clash over two key elements of government legislation following a bad day for the government.

Peers have again vowed to overturn Commons votes on foundation hospitals and moves to restrict trial by jury.

Amid angry scenes in the Commons, MPs yesterday voted by just 17 votes in favour of the government's health reforms.

The slender victory was a blow to Tony Blair and could throw into doubt controversial plans to reform student finance.

The health bill returned to the House of Lords late last night, where peers, emboldened by the narrow Commons vote, defeated the government for a second time.

Government whips spent this week lobbying hard to avoid a Commons defeat on the controversial hospital plans.

Following the knife edge vote, shadow health and education secretary Tim Yeo accused Labour of using Scottish votes to secure a measure that will have no effect north of the border.

Meanwhile David Blunkett has announced a fresh round of concessions in a bid to quell Lords' opposition to his criminal justice reforms.

Intense negotiations were continuing between the government and peers last night in a bid to secure a deal over the flagship reforms.

Peers enraged the home secretary when they voted to reject plans to restrict jury trials in complex fraud cases and where there was a possibility of jury "nobbling".