Jeremy Hunt has refused to rule out increasing benefits by a smaller amount than usual by changing how the figure is calculated.
Benefits are usually “uprated” each April in line with the inflation rate of the previous September.
But according to Bloomberg News, the chancellor is considering pegging the increase to October’s inflation rate instead, and increase of 4.6% rather than 6.7%.
Speaking to the BBC’s Sunday with Laura Kuenssberg, Hunt did not commit to increasing benefits using the traditional method.
“I am not going to say this morning what I going to announce to parliament on Wednesday,” he said.
The interview came ahead next week’s Autumn Statement, which will see him set out his tax and spending plans ahead of next year’s general election.
As well as potentially squeezing benefits, it has also been reported Hunt could cut inheritance tax as well as some income taxes or national insurance.
Rachel Reeves, the shadow chancellor, told the same programme Labour would increase benefits by the standard amount.
“In government I will use the inflation rate that is traditional, the September inflation,” she said.
“If you pick and choose from year to year which inflation number is the cheapest thing to do then what you see is the gradual erosion of people’s incomes.”
According to the Institute for Fiscal Studies (IFS) picking the October rate rather than September would cut working-age benefits spending by about £3 billion.
It would reduce the money given to for the 8 million working-age households receiving means-tested or disability benefits.
The respected economics think-tank said real benefit levels would not just take several years to regain their pre-pandemic level but “would never get back to where they were without subsequent changes in policy”.
The Resolution Foundation also said the effect of benefit cuts under the Conservatives since 2010 was “already staggering”.
Torsten Bell, the think-tank’s director, said: “The poorest fifth are around £2,700 a year worse off as a result. And that’s just the average. When people wonder why so many families are struggling today, this is a key part of the answer,”