The government could reduce the rate of Value Added Tax by up to 2.5 per cent in Monday's pre-budget report, according to media reports.
The Telegraph has cited a government source as saying that the reduction in the rate of indirect tax to 15 per cent would cost the government £12.5 billion.
It adds that measures relating to the lowest rate of income tax and home repossessions were also set to be announced.
Speaking to BBC1's Andrew Marr show, business secretary Lord Mandelson said measures in tomorrow's report were aimed at preventing a downturn from becoming a "very deep recession".
He refused to speak about the specifics of the proposals.
Prime minister Gordon Brown and chancellor Alistair Darling have also written articles in the News of the World and the Sunday Mirror promising action to help households deal with difficult economic conditions.
There was intense media speculation last week about an emergency tax cut and increased public spending after the prime minister said fiscal policy was needed to deliver a stimulus to the economy.
The reported proposals were attacked by opposition leader David Cameron, who said that increasing debt would only compound Britain's problems and limit the range of options open to future governments.
Shadow chancellor George Osborne also warned that an increasing budget deficit could lead to the collapse of the sterling.
Chancellor Darling will present the government pre-budget report in the House of Commons tomorrow.