A cut in VAT has been proposed by No 10 Downing Street to curb inflation and help households with the cost-of-living crisis.
The Prime Minister's chief of staff, Steve Barclay, has suggested reducing the 20% headline rate of the tax, the Times has been told.
He proposed that a temporary cut would reduce the tax bill for millions and ease inflation, which is at 9.1% - the highest for 40 years.
However, the Treasury is said to be concerned about the cost of the move and has warned that it could ultimately fuel inflation by overstimulating the economy. It has also raised the point that it would benefit wealthy households as well as poorer ones.
Cutting VAT to 17.5% would cost the government about £18billion.
Boris Johnson is under mounting pressure from Tory MPs to make good his pledge to reduce the tax burden, which is on course to reach the highest level since the 1940s.
Official figures published yesterday show that more than two million people have become higher-rate taxpayers under Mr Johnson's Government. A total of 6.1million people now pay the higher rate.
Discussions with the Treasury
The Times has been told that Mr Barclay raised the idea of cutting the tax during discussions with the Treasury over the past fortnight. He suggested that it would be "de-inflationary". A source familiar with the discussions said: "Steve's been pushing it quite strongly, but the Treasury is not buying it."
Another source said a potential VAT cut was discussed by Treasury officials last month before they decided against it. There were concerns that it could lead to a temporary fall in inflation followed by a longer, deeper recession.
Paul Johnson, head of the Institute for Fiscal Studies, said cutting VAT would be "economically inappropriate", adding: "It would reduce inflation in the short run because it would reduce prices relative to what they would have been. But it would increase inflation next year. It can't help in the long run.
"And it could actually lead to higher inflation overall because you would be pumping extra money into an economy where demand is already outstripping supply. Stimulating demand at the moment would be economically inappropriate. On this one the Treasury is right."