Rishi Sunak is considering raising state pensions and benefits in line with inflation in a move that would likely usher in deeper public spending cuts elsewhere and higher tax rises.
The prime minister and chancellor Jeremy Hunt are considering imposing up to £60billion in tax rises and spending cuts in the autumn budget on 17 November.
Treasury sources insisted no decisions have been taken, but did not deny a report in The Times stating they would avoid real-terms cuts on pensions and benefits.
Work and pensions secretary Mel Stride said that pensioners will be kept to the “forefront” of difficult decisions.
He said: “Pensioners are absolutely at the forefront of the group that we want to really protect as much as we can through these difficult times.”
Raising state pensions and benefits could cost a combined £11bn next year but would prevent a rebellion from some Tory MPs.
Members of Mr Sunak’s Cabinet including Michael Gove have previously warned against going back on the manifesto commitment of maintaining the pensions “triple lock”.
But with Mr Hunt considering up to £35billion of the “fiscal tightening” any extra spending would leave more severe savings and higher tax hikes required elsewhere.
The chancellor was understood to be considering a stealth raid on inheritance tax by extending a freeze on the inheritance tax “nil-rate band” from 2025-27 to 2027-28.
The Financial Times, which first reported the plans, said the move could raise at least half a billion pounds for the Treasury.
Mr Sunak will meet with his cabinet on Tuesday as he seeks to find departmental savings.
He is also understood to be considering a major gas deal with the US after returning from the Cop27 climate summit in Egypt.
Business Secretary Grant Shapps hinted on Monday that the windfall tax on oil and gas giants could be expanded to ease the burden on taxpayers.
“I think that might be a clever way of asking me what’s in the autumn statement again, but we will be setting that out, the chancellor will be setting that out, very shortly,” he said.