George Osborne is preparing to target tax relief on pensions, which has already been cut from £225,000 to £50,000.
A further reduction in the threshold to £40,000 would bring in £600 million to the Treasury, while a cut to £30,000 would produce an extra £1.8 billion. The changes would mainly hit those earning more than £200,000 a year.
The Chancellor has ruled out the Liberal Democrats' favoured mansion tax, or a higher council tax band on the most expensive properties, but yesterday, ahead of Wednesday's Autumn Statement, he made it clear the wealthy would be stung again.
On cutting the deficit, Mr Osborne said: "It's got to be done fairly and that means, yes, the richest need to bear their fair share – and they will. That means more than they're paying at the moment - But there is another conception of fairness, the fairness of the individual who goes out to work and lives next to someone who lives on benefit. We are also going to tackle welfare bills, and that is the Conservative approach to fairness."
In what is believed to be a compromise with his LibDem Coalition partners, the Chancellor has had to shelve plans to freeze welfare benefits, but is expected to announce a below-inflation increase of 1%.
Nick Clegg and his colleagues also appear to have won a victory in stopping Iain Duncan Smith, the Work and Pensions Secretary, from scrapping housing benefit for the under-25s.
The UK Government has already admitted it will not be able to balance the Government books as planned by the time of the 2015 General Election – it could take to 2018. Yesterday Mr Osborne all but admitted he would miss his other key target of cutting debt as a proportion of national income by the end of the Westminster Parliament, stressing it was "clearly taking longer" than anticipated.
Yet he stressed the Coalition was "making progress" with one million more private-sector jobs. He said that "to turn back now would be a complete disaster".
However Shadow Chancellor Ed Balls said the Chancellor's "judgment has been proved to be woefully lacking" and branded his growth plan a shambles, while Alistair Darling, the Labour former Chancellor, accused Mr Osborne of having a "bankruptcy of ideas" over how to generate growth.
Shadow Scottish Secretary Margaret Curran said:"This Government has no plan for jobs and growth in Scotland. Unemployment is worse in Scotland than across the rest of the UK and the economy is showing few signs of recovery. The 218,000 Scots who are out of a job need action now."
"The UK Government needs to change course by freeing up money from the 4G auction to invest in priorities like housing, looking again at their welfare changes, easing the squeeze on household incomes by cancelling the rise in fuel duty and scrapping the tax cut for millionaires," she added.
John Swinney for the SNP Government called for more cash "to fund capital infrastructure projects, to freeze fuel duty and reduce the pressure on budgets for families and businesses and to ensure his budget plans do no more harm to the vulnerable".
The Finance Secretary said he had given the Chancellor a list of shovel-ready projects in Scotland to boost employment.