Rishi Sunak is considering doubling a one-off payment to Universal Credit claimants to £1,000 to compensate for a planned cut in the current Covid welfare rate.
The move would help quell a potential Tory rebellion over plans to remove the £20-a-week Universal Credit uplift introduced last year.
Scrapping the uplift would cost claimants around £1,000 per year.
The Sunday Telegraph reports that Sunak wants to offer the one-off £1,000 payment to those on Universal Credit as a way to stimulate the economy.
A source told the Telegraph: “One of the motivations of the Treasury is they think people will go out and spend it and help stimulate the economy.”
The £20-a-week Universal Credit uplift is due to end on 31 March, however Labour and a group of northern Conservative MPs have called for it to be extended.
Work and pensions secretary Therese Coffey is said to be against a straight cut without significant extra support.
Labour passed a backbench motion last week to call for the £20-a-week uplift to be extended, after the Conservatives abstained on the non-binding vote.
In a letter to Coffey, shadow work and pensions secretary Jonathan Reynolds said: “For the government to abstain on whether people can afford to pay their bills would force unnecessary uncertainty on already struggling families.
“On behalf of the Labour Party I offer you our support if you chose to put aside party politics and work with us to support families through the pandemic.”