Rishi Sunak will outline a package of support to address the soaring cost of living in the UK on Thursday.
A windfall tax on oil and gas giants, who have benefited from globally high prices, is widely expected to help to fund measures which will be aimed at the most vulnerable.
Measures which have been discussed as part of a package worth around £10 billion ($13bm) could include a further increase to the warm homes discount to help low-income households to 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 the Office of Gas and Electricity Markets' (Ofgem) chief executive Jonathan Brearley’s indication that the energy price cap will increase by a further £830 ($1,000) to £2,800 ($3,500) in October.
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 currently running at a 40-year high.
“We understand that people are struggling with rising prices, which is why we’ve provided £22 billion ($28bn) of support to date," said a Treasury spokesman.
“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.”
On the issue of a windfall tax, which ministers have previously resisted because of the potential impact on investment, a Conservative Party 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,” the source said.
“You don’t introduce random taxes that make the economic environment unpredictable.”
As well as the possible impact on inflation, the chancellor’s ability to help beyond the £22 billion ($28bn) package already announced will also be restricted by the state of the nation’s finances.
At a Downing Street press conference, he acknowledged households “are going to see pressures for a while to come”. He said this was 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.”
“We are treading a very difficult path here because if we just borrow lots more money and throw it at the situation, we could compound inflation, we could make the situation worse and see prices rise further," Environment Secretary George Eustice told LBC radio.
“So we have got to try to dampen that inflation and that means showing some restraint but, equally, helping people, particularly those on the lowest incomes, who will struggle with some of these price rises.”
Mr Eustice, whose portfolio includes the food industry, suggested consumers are already switching to cheaper brands to cut their grocery bills.
He previously suggested that is a way to save money, but insisted: “I wasn’t lecturing or telling anyone what they should do.
“What I was pointing out is that last time we had this price spike, in 2008, what actually happened was that household spending on food didn’t rise by as much as food prices and that’s because people did change their shopping habits, they bought different items and in some cases, yes, they downgraded to some of the value brands.
“That’s just an observational comment; it’s what some families did in 2008 and it is what people will be doing now.”
As well as food, the cost-of-living squeeze is being driven by soaring energy prices.
There has also been speculation that a windfall tax could extend to electricity generators.
But the chief executive of energy company SSE, Alistair Phillips-Davies, told BBC Radio 4’s Today programme: “I don’t think this government is going to impose a windfall tax on successful sectors that are delivering for the UK and creating jobs and making sure that we avoid these crises in the future by bringing in lower-cost energy from indigenous sources.”