Unemployed families living in expensive accommodation may be spared the full force of the Government's proposed £26,000 a year cap, as ministers try to head off a Liberal Democrat rebellion.
Liberal Democrat peers who were threatening to back an amendment that would have drastically changed the legislation now think that the Government will offer a compromise when the Welfare Reform Bill is debated again on 17 January.
The planned cap has been a source of friction within the Coalition since George Osborne first announced it in 2010. He told that year's Conservative Party conference: "No family should get more from living on benefits than the average family gets from going out to work."
The £26,000 figure is based on an average income for all families, including those on benefits, but it is reported ministers are discussing possible changes to the way it is calculated. They may also agree to a delay in imposing the cap to give families time to adjust after the wage-earner has become unemployed, and an exemption for families placed in expensive bed-and-breakfast accommodation by councils.
The Bishop of Ripon and Leeds has proposed an amendment under which child benefit would not be counted, which would protect families with large numbers of children.
Last month, the Lords rebelled over a proposal under which families would be paid housing benefit only for the rooms they occupy, and not for the nominal rent charge for empty bedrooms.
The move was intended to give claimants in underoccupied properties an incentive to move.