George Osborne is set to drop his controversial plans to end housing benefit for the under 25s after a Lib Dem revolt, reports the Guardian.
The plan, which aimed to cut £2bn from the UK's welfare bill, was floated by David Cameron in June but has met with stiff resistance from his coalition partners.
Nick Clegg and Vince Cable are reported to have vetoed the move, which was to be announced in the Autumn statement on Wednesday.
Last month 13 leading charities including Barnardo’s, the Teenage Cancer Trust, Crisis and Shelter wrote an open letter to the government stating their objections to the cuts.
They argued that the plans would "take away a vital safety net for young adults who lose their job, experience domestic violence, become ill or disabled, or who are themselves bringing up children."
Last week the plans to cut housing benefit came under fire again after a 21-year-old killed in storms was named as homeless Michelle Conroy, who had been sleeping rough in Exeter city centre, despite the extreme weather.
The move was part of wider money-saving plans to freeze benefit payments with the exception of pensions and disability allowance.
He is now thought to have had to concede a one per cent rise to gain Lib Dem approval, reports the Daily Mail.
Lib Dem MP, Greg Mulholland, said on Saturday that their were "red lines" that his party would not allow the Government to cross.
He said: "The Lib Dems would not stand for cutting housing benefits for under 25-year-olds which would not only be unjust and unfair but would have unacceptable consequences for many young people.
"Neither do we think a freeze in working-age benefits is acceptable.
"Having spent the last year making sure that benefits are directed to those who really need them most, a move to cut them now in real terms is not the right thing to do."
Government splits on the issue surfaced last month when Lib Dem Minister Sarah Teather denounced them as "immoral".