The chancellor is expected to unveil new support for workers in parts of England under tier two restrictions.
Rishi Sunak will announce an update to the Job Support Scheme (JSS) – which is set to replace furlough in November – in the Commons on Thursday.
Critics say not enough is being done for companies in tier two areas that have seen demand collapse without being formally required to shut.
In tier three areas, workers at firms ordered to shut get emergency support.
Talks were held throughout Wednesday, with the government said to have acknowledged that while there are three tiers of pandemic shutdowns, there are only two tiers of support.
In tier three areas, the government will pay 67% of affected workers’ wages, up to £2,100 a month from 1 November. Some workers can also claim Universal Credit.
But in tier two regions the only help available will be the standard JSS – which is meant to support “viable” jobs and requires a much larger contribution from employers.
Business groups and unions say this means many firms will not be able to use it and will have to lay off workers instead.
The gap in support particularly, though not exclusively, affects pubs and restaurants in tier two areas and has been described as the “worst of all worlds” by the hospitality industry.
Key Conservative figures, such as the West Midlands Mayor Andy Street, have also been critical of the disparities, along with a raft of Labour local leaders and MPs.
Mr Sunak’s original winter economic plan – publicly backed by the leaders of both business lobby group the CBI and the TUC on the steps of Number 11 – was predicated on a period of declining infections and a recovering economy, says the BBC’s economics editor Faisal Islam.
But that has not transpired, forcing the government to bring in tougher local lockdown rules.
Under tier two, the second highest risk level, households cannot mix in indoor spaces, which is already hammering demand in sectors like hospitality and leisure.
As more parts of the country are placed in tier two, critics say the standard JSS is likely to fall short, with many fewer firms than expected signing up.
Options being discussed in Whitehall include more generous taxpayer wage support for businesses in these regions, up from the current level of 22%, and grants offered through local authorities.
With so much of England now in tier two, even small increases in support could end up being very expensive. Business and union leaders will be briefed on the changes on Thursday.
It comes amid warnings that unemployment could rise as high as 8.5% in the first half of next year without more government support for struggling businesses.
In the three months to August, redundancies rose to their highest level since 2009, the Office for National Statistics (ONS) said.
The number claiming work related benefits, meanwhile, hit 2.7 million in September – an increase of 1.5 million since the beginning of the crisis in March.