Rishi Sunak will press the button on a controversial windfall tax on energy companies on Thursday as he outlines measures to ease the pain of rising household bills.

Treasury sources have not denied reports that the Chancellor will use his announcement to scrap the requirement to repay a previously announced £200 rebate on energy bills for all households, or that he may increase the grant level.

Additional measures should also target the poorest households in the cost of living crisis, as runaway inflation drives up the price of everything from food to fuel.

Sunak is set to announce an increase to the warm homes rebate scheme, which is worth £150 to 3 million low-income households. This grant could reach up to £500.

The government could also offer a planned increase in benefits that was expected next year or offer a council tax refund.

The Times reported that the previously announced £200 loan on energy bills will be replaced by a grant that will not have to be repaid, with the rebate of up to £400.

The measures will be funded in part by a windfall tax on energy companies, after a fierce battle in government over the policy, which was fiercely opposed by some ministers, including business secretary Kwasi Kwarteng. The measure could be extended to all electricity producers and could include exemptions for investments.

A senior party official admitted the decision caused splits in the government. “The arguments have been rigorously tested both within the Treasury and within government and there is strong pressure to ensure that the gain is worth it and does not compromise investment,” they said. they stated.

“We don’t want to introduce random taxes that make the environment unpredictable for global companies that can go anywhere. We need to set the bar high and do something truly impactful and put massive safeguards in place to ensure we don’t jeopardize investments.

The windfall tax reversal will be seen as a victory for Keir Starmer’s Labour, which has long called for such a measure. The Tory official said he would draw a clear dividing line.

Boris Johnson set to announce windfall energy tax U-turn, says Keir Starmer – video

“For conservatives, raising taxes is a way to end funding for public services and help those who can’t help themselves. So any package will be focused on what it allows us to do to help people who are suffering,” they said.

“There will be a new package that will explain where additional funds will be acquired… It will be really impactful and comprehensive.”

Oil and gas producers profited from soaring global energy prices during Russia’s war in Ukraine. Rising gas prices have pushed up wholesale prices in the electricity market, including for some renewable and nuclear power producers.

The Treasury is said to have analyzed whether the tax should be extended beyond North Sea operators such as BP and Shell to generators, including renewable energy operators such as wind farms.

It is estimated the plan could tax more than £10bn in excess profits, although City analysts said the figure was well beyond their estimates. Labour’s plan for a one-off levy applied only to North Sea oil and gas producers would bring in around £2billion.

A Treasury spokesperson said: ‘We understand people are struggling with rising prices which is why we have provided £22billion of support to date. The Chancellor has made it clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.

Economists say the cost of living for Britain’s poorest households is set to rise nearly twice that of the wealthiest when energy bills rise this autumn.

The Institute for Fiscal Studies (IFS) said another spike in gas and electricity bills expected in October could lead to average annual inflation rates of up to 14% for the 10th poorest households.

The energy crisis was highlighted this week when Jonathan Brearley, the chief executive of energy regulator Ofgem, indicated that the energy price cap would rise by another £830 to almost £2,800 in October .

This increase will likely disproportionately affect poorer families, as a larger share of their total expenditures is on energy. The IFS said the 10th poorest household typically spends nearly three times as much of its budget on gas and electricity as the 10th richest.

This means that low-income households experience a much higher rate of inflation than wealthy ones. The IFS predicts that while inflation for people on the poverty line hits 14% this fall, the 10th richest could see rates of around 8%. In all households, inflation is expected to reach 10%, the highest rate since 1982.

In a sign of mounting pressure on households, figures on Wednesday showed average petrol prices hit a new record high of 170.4 pence per liter from 129 pence per liter a year ago. Diesel rose to 181.4p from 131.3pa the previous year.