Removing VAT from energy bills, which is currently levied at five per cent, would save £90 a year for households on a default “standard variable” tariff. The move would cost the Exchequer about £2.5 billion.

It comes amid a deepening cost of living crisis, with rising prices already hitting family budgets.

On Friday, Downing Street ruled out scrapping a planned rise to National Insurance contributions, despite pressure from Tory MPs already wavering in their support for Boris Johnson.

The Prime Minister’s spokesman confirmed the National Insurance tax rise would go ahead in April, “no ifs, no buts”. He said both Mr Johnson and Rishi Sunak were “fully committed to introducing the health and social care levy” this spring.

Instead, the Government is considering helping families by scrapping VAT on energy bills, freezing council tax and increasing the value and eligibility of existing schemes targeted at low income households, such as the Warm Home Discount.

Government sources confirmed that all of these options were on the table, but insisted that no final decision had been made.

Cutting VAT faces opposition within the Treasury, where one insider argued that the move “doesn’t discriminate between the wealthier and less wealthy people”. The insider added: “Temporary cuts have a habit of not becoming temporary.”

However, another Treasury source stressed there were “drawbacks with lots of options” under examination.

Ofgem, the energy regulator, will announce the increase to the energy price cap, which protects 22 million customers – three-quarters of households – at 7am on Monday week, after finalising its calculations next week. It will take effect on April 1.

An analysis by Cornwall Insight, an energy market analysis firm, has found the new ceiling will soar to £1,897, owing to record increases in the price of wholesale gas and significant market volatility over the past six months.

The estimate falls only slightly short of the most dramatic forecasts suggesting energy bills could hit £2,000 this spring.

Based on forecasts for the gas price from February to July, Cornwall Insight believes the price cap is likely to rise again in October – to £2,054.46.