Concern is growing in Government that "the worst is yet to come" on inflation, as spiralling prices devour future tax cuts.

Ministers now fear that even multi-billion-euro tax cuts will not be enough to ease the sting of a rising cost of living.

As the Government enters tense pay negotiations with the public sector unions, it has been suggested that one way to curb the inflationary spiral will be through a series of tax cuts.

But as fuel surges back over €2 per litre, worried ministers warned: "Fuel increases alone will wipe out Leo's tax cuts."

Amid growing unease that inflation is poised to "break out" from fuel and construction, one minister warned: "Not even tax cuts will be able to combat an inflationary spiral."

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This will come as a blow to Leo Varadkar, who plans to build a recovery on an aggressive tax-cutting strategy. The Tánaiste and Fine Gael leader is advocating for a new 30% tax rate to help struggling lower- and middle-income workers.

His proposals would cost the Exchequer up to €1.72bn in a full year, depending on how far the cuts go.

The proposed 30% rate has been described as "reaching straight to the heart of core Fine Gael support in the struggling middle".

A single person earning up to €36,800 a year pays tax at the 20% rate, while any income above that is taxed at 40%.

The Tánaiste's proposals would remove between 708,000 and 861,900 people from the upper tax bracket.

But one Fine Gael minister warned: "Fuel alone is a couple of thousand euros a year. That will soak up all of the benefits of any tax cuts. We will be running to stand still and that's before the rest of it starts."

This unease was underlined by another minister, who claimed: "Fuel price inflation will devour the Government's response to the crisis."