Ministers are examining a GBP1bn-a-year increase in benefit payments to cushion the impact of the imminent GBP6bn-a-year cut in universal credit.

After growing pressure to reverse the GBP20-a-week cut, the Treasury is looking at a proposal from the Department for Work and Pensions (DWP) to let working people who receive the benefit keep more of their earnings, it is understood.

It would involve reducing the “taper rate” for universal credit (UC) from 63p to 60p, which would cost the government around GBP1bn a year, and could be announced in next month’s budget.

The mooted plan is a sign of the pressure felt by the DWP and the government more widely ahead of the end of a GBP20-a-week increase in universal credit, brought in during the pandemic but due to end on 6 October – the day Boris Johnson makes his leader’s speech to the Conservative conference.

Charities have warned it will push hundreds of thousands of families into poverty, exacerbated by rising energy costs. On Wednesday, the former prime minister Gordon Brown wrote in an article for the Guardian that the cut was the most “socially divisive and morally indefensible” he had witnessed in UK politics.

Under current rules, if someone is paid more than a set allowance while receiving the benefit, then for every pound above that they earn, 63p is taken off their benefit payments. This had been reduced from 65p in 2017, and the DWP plan would see it fall again, to 60p.

In practice, tax and national insurance further increases the amount deducted by the taper. Labour says a single parent working 30 hours a week on the national living wage loses GBP573 a month of their universal credit entitlement – equivalent to a marginal tax rate of 75% – which it contrasts with the 47% marginal tax rate faced by high earners.

A reduction in the taper rate would mollify some Conservative MPs worried about the cut, not least as it would reinforce the notion of people gaining more by working extra hours. However, the budget is on 27 October, three weeks after the end of the UC uplift.

A cut to the taper would also only boost the incomes of the approximately 40% who are in work, and among those, only people whose jobs and circumstances allowed them to take on extra hours. Given this, among factors the Treasury will examine is whether the cost of cutting the taper would be the most efficient way to help people.

It would also by no means compensate most claimants for the GBP20 cut, an end to a boost to universal credit introduced to help families amid coronavirus.

The Resolution Foundation thinktank said reducing the taper rate by three percentage points was in itself a positive move but should not be seen as an alternative to retaining the uplift. A working family with kids and housing costs with a post-tax income of GBP15,000, for example, would be just GBP5.13 a week better off.

“The gains are far smaller than the GBP20-a-week cut, and would flow to better off families on universal credit while 3 million families would gain nothing at all. Virtually all households would still be significantly worse off overall,” said Karl Handscomb, senior economist at the Resolution Foundation.

Funding a reduced taper rate would not be insubstantial, although it is likely to be far less than the GBP6bn-a-year cost of extending the GBP20 uplift. Some estimates suggest every percentage point reduction in the taper rate would cost GBP350m.

Reducing the universal credit taper rate is one of the Labour party’s few solid commitments to so far emerge from its review of tax and welfare policy, though it has not specified a target reduction.

The political architect of universal credit, Iain Duncan Smith, who resigned as work and pensions secretary in 2016 in protest at then chancellor George Osborne’s cuts to benefits, has consistently called for the taper rate to be set at 55p, in line with his original vision.