Keir Starmer could water down the cap on child benefits to appease Labour backbenchers as he faces a major welfare rebellion.
The Department for Work and Pensions it said to be looking at extending the current two-child cap on state handouts to a third child.
It comes as the prime minister faces the prospect of up to 170 of his MPs refusing to back plans to make it harder to claim disability benefits when it is put to a vote next month.
Around 60 could vote against it, with 100 or so more ready to abstain, which may allow it to become law but would be a major show of discontent less than a year into Labour's time in power.
After hosting his EU summit in London today, Sir Keir is expected to address a meeting of the Parliamentary Labour Party this evening, which will give MPs an opportunity to sound off.
