Rishi Sunak is under mounting pressure from Tory MPs not to hike taxes at next week's Budget amid fears he will launch a 'stealth' raid on wealthy pensioners.
The Chancellor will unveil his Budget on March 3 and he is expected to set out a raft of continued coronavirus support measures for businesses and families.
But it is thought Mr Sunak will also use the fiscal event to stress that current levels of Government spending and borrowing are unsustainable and action must now start to be taken to improve the public finances.
The Times reported that Mr Sunak is planning to announce a freeze on the lifetime allowance on pensions, lasting for the rest of the current Parliament.
The allowance - the amount of money people can build up in their pension pot before being hit with big tax bills - is currently set at £1,073,100.
Chancellor Rishi Sunak will unveil his Budget next week on March 3 amid growing Tory fears he will hike a range of taxes
Mr Sunak has repeatedly stressed that current Government spending levels are not sustainable. Office for National Statistics numbers published this month showed state debt had risen above £2.1trillion in January
Freezing the allowance would mean thousands of pensioners being dragged above the threshold in the coming years, potentially raising an additional £250million for the Treasury every year.
The newspaper also claimed Mr Sunak could opt to freeze the higher rate of income tax threshold at £50,000 in a move which would see hundreds of thousands of people becoming higher rate tax payers. It is thought this could generate an extra £1billion for the Treasury.
Meanwhile, The Telegraph said the personal income tax allowance - the amount of income people do not have to pay tax on - could also be frozen at the current threshold of £12,500.
The personal allowance threshold has risen significantly in the last decade - it stood at £6,475 in 2009/10.
Keeping the threshold at the current level could boost Treasury coffers by billions of pounds.
A senior Treasury source told The Telegraph that as well as messages of 'support' at the Budget, Mr Sunak will also speak plainly about Government spending levels.
The source said: 'You will hear the word honesty used a lot. He will be very clear to people that we've spent at wartime levels to get people through this, which was the right thing to do, but this can't go on forever.'
Mr Sunak is expected to announce at the Budget that the furlough scheme and business rates holiday for the retail and hospitality sectors will be extended to June.
The Office for National Statistics said earlier this month that over the whole of 2020 the economy dived by 9.9 per cent - the worst annual performance since the Great Frost devastated Europe in 1709
Official figures showed that in the three months to December the unemployment rate went up by 0.1 per cent compared to the equivalent period up to November
A temporary £20 a week uplift in the value of Universal Credit is also due to be retained for potentially another six months.
But reports that the Chancellor could hike corporation tax from 19 per cent to as high as 25 per cent, as well as fears of a fuel duty hike, have spooked many Tory MPs.
Numerous Cabinet ministers are opposed to the prospect of imminent tax rises, amid concerns they would harm the UK's economic recovery from the pandemic.
One Cabinet minister told The Telegraph that the 'answer to the pressures of Covid doesn't lie exclusively in just cranking up tax' while another said 'now is not the time' for increasing taxes.
Boris Johnson has threatened to expel any Tory MP who votes against next week's Budget.