Jeremy Hunt warned of a backlash from Tory MPs and “red wall” voters in the North and Midlands if he used the Autumn Statement to deliver tax cuts for the wealthy.
Rishi Sunak and his chancellor are believed to be considering cutting inheritance tax – but the move will spark huge criticism of helping the wealthy while millions struggle with the cost of living crisis.
Mr Sunak and Mr Hunt are said to be weighing up cuts to income or national insurance at the 11th hour – having been warned by the northern Tories that Wednesday's autumn statement should focus on lower paid workers and businesses.
It comes as a new report from the prestigious Institute of Fiscal Studies (IFS) says an inheritance tax cut would raise an average of £180,000 for millionaires.
Senior Tory MP John Stevenson, who chairs the Northern Inquiry Group, said he supported legacy reform in the long term – but said Observer that “at the moment any tax cuts should be aimed at helping businesses or the low-wage”.
Former minister Jonathan Gullis, who is the MP for Stoke-on-Trent North, said he believed inheritance tax should “eventually be scrapped” – but said “now is not the time for this tax cut”. .
The right-wing red wall MP argued that cutting the basic rate of income tax and increasing the threshold for the 40p rate would help families “really feel the squeeze”.
Mr Hunt also argued he had to make “difficult decisions” as he looked to slash welfare payments by billions – telling broadcasters there was “no easy way to reduce the tax burden”.
The Sunday Times said Mr Hunt and the prime minister were now weighing cuts to income tax or national insurance in a last-minute move to boost growth and favor them with voters.
The paper also said they could delay the inheritance tax cut until the spring budget to avoid claims they are ripping off the rich. Whitehall sources described the report as speculation.
Higher tax revenues and lower borrowing costs gave Mr Hunt around £20bn more than expected – more than three times the amount in March's budget.
Mr Hunt is also under pressure for a squeeze on benefits as he tries to fund tax cuts. Ministers normally use the September figure for inflation when upgrading working-age benefits, which would mean a 6.7% increase.
However, Mr Hunt did not rule out using October's much lower rate of 4.6%, which would cut spending by around £3bn. The savings will hit hard at working-age households on disability or means-tested benefits, according to the IFS.
Using the lower rate would affect the incomes of nine million low-income families, according to the Resolution Foundation. New analysis from the think tank said some families would lose up to £500 a year.
Cutting inheritance tax – possibly by half – would be popular with the Tories, with Mr Sunak under increasing pressure from that wing of his party, but would directly benefit only a small proportion of the public.
Only around 4 per cent of deaths in 2020/21 resulted in inheritance tax being paid, with exemptions allowing many couples to pass on up to £1 million tax-free.
Inheritance tax is charged at 40 per cent on estates over £325,000, with an extra £175,000 for a main residence passed on to direct descendants.
But Mr Hunt is said to be considering halving it ahead of a possible promise to scrap it altogether in the next Tory manifesto. The IFS said four-fifths of an inheritance tax cut would benefit those with more than £1m.
Former Tory minister David Gauke told the BBC that cutting inheritance tax, while millions are struggling, risked “re-toxifying” the Tory party.
Torsten Bell, head of the Resolution Foundation, questioned the idea of reducing inheritance tax now. “Even if you think lower inheritance taxes are desirable, are they more desirable than not raising income taxes as much?”
Tax campaigner Richard Murphy also condemned the idea, calling it “easily the stupidest [potential tax cut] He added: “This will save millions for a few already relatively wealthy people, do nothing for the economy and increase inequality.”
Mr Hunt is also set to announce that households closest to new electricity pylons and substations could get up to £10,000 off their bills over 10 years under plans aimed at boosting growth.
But Lib Dem Treasury spokeswoman Sarah Olney said it would create “a postcode lottery system leaving millions of families still facing higher energy bills while others benefit”.
And Jonathan Bean, of Fuel Poverty Action, said it was a “bad idea”. He said The independent: “It's pretty crazy that some rich people in huge houses in the countryside can get a big discount when we see some people being forced to turn off their heating or being forced to go to food banks.”