George Osborne has hinted he may reduce his target of achieving a £10bn budget surplus in order to soften the impact of cuts to tax credits.
The cahncellor today insisted it is "not a weakness" for him to reassess the cuts after the House of Lords rejected the proposals.
Next week Osborne will unveil his spending review which is expected to see further cuts across Whitehall departments.
A key part of his plan had been to cut tax credits for working families. However peers forced him to rethink the move by rejecting it in a high stakes vote.
Speaking to the BBC's Andrew Marr programme on Sunday morning, Osborne acknowledged his opponents, which include many Tory MPs, had "legitimate" concerns.
"It's not a weakness to listen to good argument," he said.“Of course I am prepared to listen to those who say can we ease the transition to this lower welfare higher wage economy."
The chancellor denied he had been “at war” with his cabinet colleagues over cuts to their departments. “All departments have settled and all settled amicably,” he said.
And he hinted he would no longer aim for a £10bn budget surplus, allowing him to ease the impact of the tax credit cuts. "The precise level of the surplus will be set out in the forecast on Wednesday," he said.
Osborne also announced today the purchase of new fighter jets is to be speeded up and promised funding to ensure the Royal Navy can deploy one of its new aircraft carriers at all times by 2023.
Details of the upgrade will be at the centre of the government's Strategic Defence and Security Review (SDSR), due to be set out to the Commons by David Cameron tomorrow.
Osborne said the move would put the UK second only to the United States in carrier capability and mean it could respond to threats "wherever and whenever necessary".
The government had proposed to have only eight of the US-built F35 Joint Strike Fighter aircraft available for deployment to the new carriers HMS Queen Elizabeth and HMS Prince of Wales by 2023.
That has now been trebled to 24 - all in strike roles if required - with the 18 others on order being used in the training fleet or in maintenance, the Chancellor told the Sunday Times.
Capability could be temporarily "surged" to 39 jets to respond to specific threats.
Defence spending received a boost in the Budget, when the chancellor declared that the UK would continue to meet a Nato target to devote at least 2% of national wealth to defence.
It has already been announced that the SAS and other special forces will get an extra £2 billion to improve their equipment, the RAF will double its number of drones, an extra £1.9 billion will be spent on cyber security and 1,900 new spies recruited.
The SDSR is also expected to reveal that the expected cost of renewing the UK's nuclear deterrent has risen - with the SNP warning against cutting the number of anti-submarine frigates to be built in Scotland to compensate.
Enhancing the carrier capability to ensure at least one is available would enable the UK to contribute to international missions such as the one against Islamic State (IS) from the Gulf, source said.
It was also claimed, the Sunday Times said, that it would mean the UK was able to respond to any future attempt by Argentina to invade the Falkland Islands, something critics have claimed Britain can no longer do.
Osborne said the policy was also worth £29 billion to the UK businesses in the supply chain, including BAE, Rolls-Royce and ejector seat manufacturer Martin Baker.
"My spending review this week is all about security - national and economic," he said ahead of unveiling spending plans for the rest of the parliament on Wednesday.
"The decisions we are taking to restore sanity to the public finances left by Labour mean we can invest in our priorities – including world-class defences so we can protect our interests and our people.
"By bringing forward the purchase of the world's most advance stealth fighter jets, we will enhance our ability to respond to threats wherever and whenever necessary.
"With more jets on board, our independent aircraft carrier capability will be second only to our closest allies, the Americans.
"These are versatile multi-role fighter jets, able to engaging in air-to-air and air-to-ground combat, giving us the ability to deal with evolving threats.
"And of course, British businesses and workers will benefit from this decision too, which is worth £29 billion to the UK supply chain."Suggest a correction