Chancellor Rishi Sunak is expected to cave in to pressure to impose a windfall tax on the soaring profits of oil and gas firms when he unveils a significant package to ease the cost-of-living crisis.
Treasury sources did not deny reports he would use his announcement on Thursday to scrap the requirement to repay the £200 discount on energy bills, and could increase the level of the grant.
Mr Sunak will detail his plan in the Commons as the Government seeks to draw a line under the partygate row and focus on the squeeze in living standards caused by soaring inflation.
Details of the one-off tax to fund fresh support measures were not known but Labour is likely to claim a victory of sorts after it campaigned for the measure against opposition from Boris Johnson.
Measures which have been discussed as part of a package worth around £10 billion could include a further increase to the warm homes discount to help low-income households cope with rising energy bills.
Other measures which have been discussed include increases in the winter fuel allowance, a further cut in council tax or a VAT cut.
The need for extra help was illustrated by Ofgem chief executive Jonathan Brearley’s indication that the energy price cap will increase by a further £830 to £2,800 in October.
The Times reported that the previously announced £200 loan on energy bills will be replaced with a grant that will not have to be paid back, with the discount possibly increasing to as much as £400.
Ministers have spent months criticising the idea of a windfall tax because of its potential impact on investment.
But on Wednesday a Tory source said the arguments had been “tested rigorously” within both the Treasury and wider government.
“There’s a high threshold that any package that we bring forward delivers more gain than pain, that the gain is worth the pain, that it does not jeopardise the investment,” he said.
“You don’t introduce random taxes that make the economic environment unpredictable.”
Offshore Energies UK (OEUK), which represents the offshore oil and gas industry, has warned a one-off tax on North Sea firms would see higher prices and do long-term damage to the oil and gas industry.
The Chancellor will need to be careful that any extra help he puts in to the economy does not add further to inflation, which is running at a 40-year high.
As well as the possible impact on inflation, the Chancellor’s ability to help beyond the £22 billion package already announced will also be restricted by the state of the nation’s finances.
A Treasury spokesman said: “The Chancellor was clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.
“He will set out more details tomorrow.”
The Prime Minister said the hundreds of billions poured in to dealing with the Covid pandemic had left a “very difficult fiscal position”.
At a Downing Street press conference, he acknowledged households “are going to see pressures for a while to come” as a result of the spike in global energy prices and supply chain problems following the pandemic.
But he said: “We will continue to respond, just as we responded throughout the pandemic.
“It won’t be easy, we won’t be able to fix everything.
“But what I would also say is we will get through it and we will get through it well.”
Mr Johnson has said a windfall tax would “deter investment”, would be “totally ridiculous” and would “raise prices for consumers”.
The Chancellor also voiced opposition but began laying the grounds for a change of policy in recent weeks, saying he was “pragmatic” about the possibility.
Some of the most vehement criticism has come from Brexit opportunities minister Jacob Rees-Mogg, who has argued it is wrong to raid the “honey pot of business” and the measure would ultimately see the public pay more tax.
But Labour leader Sir Keir Starmer has argued a U-turn is “inevitable” as the tax on North Sea firms would “raise billions of pounds, cutting energy bills across the country”.