Ministers are planning to scrap EU limits on state aid, to allow the government to provide more support to businesses crippled by the costs of the extended coronavirus lockdown.

Under proposals being drawn up by the Department for Business, caps would be eased on money that can be paid in grants to companies that have been forced to shut, The Times reports.

These were put in place last year by the European Commission and the UK was forced to abide by them as part of the transition period.

Despite leaving the EU, guidance last month stated the old rules “should still be applied” until further notice.

Business has warned that without a change, many companies in hard-hit sectors such as hospitality and retail will be unable to access further funds because they have already reached their state aid limits.

Many say they are unable to access the full support to which they are entitled under a £4.6bn scheme unveiled last month by the chancellor, Rishi Sunak.

They have told ministers that unless the rules are relaxed, companies will be forced to shut shops or go out of business altogether.

A senior government source said ministers were now looking to raise the £3.5m limit on the amount of support a single business can currently receive.

There had been concerns that any rise could breach the principles of the trade deal struck with the EU in December, which set broad state aid standards by which the UK agreed to abide.

But at the end of last month the EU itself raised the maximum amount a single business could receive in support to €10m — meaning any UK move would not be giving unfair support to British businesses under the terms of the deal.

A government spokesman said: “Throughout the pandemic we have provided businesses with an unprecedented level of support worth £280bn, including with various loan schemes, VAT cuts, business-rates holidays and the furlough scheme. Now that we are able to set our own rules and regulations, we are looking to make sure that they deliver for British businesses and consumers.”