As the Cabinet was finally set today to agree a memo detailing water charges, it emerged elderly people on state or invalidity pensions, and those on disability allowance would receive a €100-a-year package to help with the cost.

A senior Fine Gael source said the party refused the exemption for social welfare claimants because with the average charge remaining at €240, it would put more of a financial burden on middle-income earners, and disincentivise people from accepting job offers.

Weeks of coalition conflict over how to structure water pricing has created heightened tension between the two parties.

A source close to Social Protection Minister Joan Burton said Labour never sought to exempt all welfare recipients, but wanted affordability measures put in place for key vulnerable groups.

Tánaiste Eamon Gilmore said he expected the water pricing deal to be signed off on after intensive wrangling with Fine Gael on the issue.

“We have made a lot of progress on the issue of water charges. Indeed, we did a lot of work on it over the course of the weekend,” he said.

The deal will also see the scrapping of the proposed flat-rate €50 standing charge, which will be paid for by a higher-usage charge for customers.

A €40m package of assistance for vulnerable groups such as elderly and disabled people is to be channelled through the Department of Social Protection from outside funds.

Labour was annoyed at what it saw as a Fine Gael Cabinet “ambush” last month on how water metering prices would be structured and had been seeking a range of changes since.

The move has provoked tension, but Taoiseach Enda Kenny is keen to keep his pledge to tell voters what the prices will be before the local elections on May 23.

Mr Gilmore insisted charges were needed to repair the system and boost conservation.

“What we’re delivering in government is a way that we can conserve water. We know that about 40% of the water being produced is leaking and being wasted,” he told RTÉ. “What we will emerge with is a formula that will encourage households to conserve water but also enable households to reduce their bill.”

The average cost per household is set to remain at €240 when charges are introduced from October, with the first bills to be sent out by January.

However, only 25% of homes will be metered at that stage, but households can claim a rebate if they have been overcharged once their usage is measured.

Ministers have given Irish Water a €537m subvention to offset water charges by diverting proceeds from the local property tax.

The Government claims that under a deal agreed between Fianna Fáil and the troika, the annual water charge would be between €400 and €500 with no exemptions.