George Osborne is reportedly preparing to raid pension savings to fund a pre-election tax cut for working Britons, in a move which has senior Labour figures on edge.
The chancellor is expected to raise the level at which national insurance is paid in his Budget, in less than two weeks, according to the Times. This would amount to an income tax cut for many people and effectively hamper Labour's argument that poor families have failed to benefit under his economic management.
He will have some scope for a giveaway as higher tax receipts, lower inflation and rising economic prospects may mean he has as much as £5 billion extra to play with, according to analysis by the Financial Times.
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Osborne will pile on the political pressure if he decides to fund the tax cut by raiding pension tax reliefs, as it is also how Ed Miliband said last week he would fund a cut in university tuition fees, potentially forcing the Labour leadership to tweak their policy platform.
The Tories have already criticised one part of Labour's proposed cut on pension tax reliefs, the idea of reducing the annual amount that savers can contribute tax-free to their retirement pots. However, Labour expect the Tories are keen to copy their planned raid on two other pension tax reliefs, a cut in the lifetime allowance and a reduction in tax relief for those earning over £150,000.
Coalition figures have tried to play down any suggestion that Osborne could use his budget for a big giveaway, but others argue he will be unable to resist a populist move.
Speaking at a debate on small business policy on Monday, Lib Dem MP Lorely Burt, , ministerial aide to Treasury minister Danny Alexander, insisted that "there is not likely to be any world shattering new initiatives announced one month before the general election".
However, business minister Matthew Hancock, who is seen as close to the chancellor, said Osborne's budget would mean "great things, jubilation, excitement and further progress" for Britain.