Millions of people could see a cut in their benefits increase under proposals which risk a rift in the Coalition.
Chancellor George Osborne is said to be considering temporarily ditching the traditional link between benefit rises and inflation after inflation came in at shock 5.2 per cent in September.
One of the models being examined by officials is to increase benefits in line with average earnings to save billions according to the Financial Times.
But a senior Liberal Democrat source said: "Cutting money to the poorest people in society and driving up poverty figures would be a difficult thing for our party to accept."
Work and Pensions Secretary Iain Duncan Smith is also said to be concerned.
One government official said although no firm proposals were on the table, the issue was "very live", adding: "It's highly unlikely we will have a 5.2 per cent across-the-board increase."
The current Treasury position is still that benefits and pensions go up in line with September inflation but officials shied away from commenting on the likelihood of partially axing this link at least temporarily.
The Institute for Fiscal Studies think tank has estimated that the 5.2 per cent inflation rate in September added £1.8 billion to the expected benefits bill.
