A rebel MP leading calls for suppliers to be hit with a one-off tax said that he no longer regarded it a "deal-breaker" in helping poor families to meet the cost of rising energy bills.
Union leaders gathering at the TUC conference in Brighton tomorrow will press ahead with demands for energy firms to surrender a proportion of their huge profits.
But the retreat by Rob Marris, a ministerial aide, will come as a relief to the PM after his attempted "relaunch" last week was overshadowed by more questions over his leadership. Mr Brown faced the threat of cabinet resignations if the multibillion-pound tax had gone ahead. The Chancellor, Alistair Darling, and John Hutton, Secretary of State for Business, had warned that a windfall tax would damage the economy.
Mr Marris said yesterday: "The Government has made good progress in its negotiations with the energy companies. I still favour a windfall tax but it is not a deal-breaker for me. We have got to look at the whole package."
Mr Brown will continue his fightback tomorrow when the Cabinet decamps to the West Midlands for its first meeting outside London. The package to help families with fuel bills is expected on Wednesday, depending on talks between ministers and energy firms.
Mr Brown is counting on signs of an economic recovery to restore his political fortunes. But yesterday the head of Britain's largest mortgage provider warned that the credit crunch could last for another 18 months.
Andy Hornby, chief executive of HBOS, told the BBC that house prices were not likely to rise again until 2010, while lenders waited "to give the confidence back into the system for banks to start lending again".
The fuel package, details of which will be outlined this week, will include around £1bn towards the cost of insulating the homes of the poorest families. The Independent on Sunday understands the Government is also planning a series of measures, including helping poorer people use the internet so they can switch suppliers. Officials are working with suppliers to increase the use of "smart meters", to help cut bills for the poorest customers.
The proposals emerged after a series of stormy meetings between ministers and bosses of the "Big Six" suppliers, which failed to result in a significant cash boost to the most "fuel poor" members of society.
Minutes of one meeting, obtained by the IoS, reveal a fundamental disagreement over the impact of pre-paid meters (PPMs), which ministers claimed left some customers paying up to £140 a year more than those using other payment methods.
"They [the companies] emphasised the point that a small percentage of the fuel poor were on PPMs," a summary of one meeting in January stated. "Both ministers dismissed the point." Later in the meeting, the energy minister Malcolm Wicks raised concerns about the ability of poorer people to switch suppliers to get the best deal. "MW highlighted the difficulties of those who aren't computer literate," the minutes say.
A source at the Department for Business, Enterprise and Regulatory Reform said the energy firms had agreed to make it easier for customers to switch suppliers over the telephone and by other means.
Critics last night warned that £1bn on energy-efficiency measures was far short of what is needed to eradicate fuel poverty. Research by the Association for the Conservation of Energy found that it would take £9.2bn to make the homes of the poorest families in England energy efficient.
Tony Woodley, joint general secretary of Unite, warned that the poor and elderly would be "lagging their coffins" rather than their roofs if the Government did not force energy companies to do more.
The Liberal Democrat Treasury spokesman Lord Oakeshott said: "This pathetic gesture by the fuel fat cats won't warm poor families' hearts. It's like striking a match in a blizzard."
Caroline Lucas, newly elected leader of the Green Party, told her party conference yesterday: "Just three companies – BP, Centrica and Shell – together made £1,000 profit every second over the first six months of this year. These corporations are robbing from the poor to give to the rich and they know it. And it's about time they learned... there is no place for robber barons."
Compounding concerns about an apparently widening gulf between the rich and the rest of society in the UK, a report – Do the Super Rich Matter? – published by the TUC today warns that the "super-rich" are wealthier now than they were at the end of the 19th century.
Union leaders will call for those earning more than £100,000 a year to pay a minimum tax rate of 32 per cent, rising to 40 per cent for those on £200,000 or more.
TUC General Secretary Brendan Barber said: "The super-rich have not created much in the way of extra wealth – they have mostly taken it from the rest of us. It's Robin Hood in reverse."
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