Pension funds are braced for a hit worth tens of billions of pounds as Michael Gove, the levelling up secretary, tries to salvage his ambition of overhauling Britain’s centuries-old property leasehold system.

Sky News has learnt that the insurance and pensions industries believe that Mr Gove’s now-favoured option of imposing a £250 cap on ground rent and transitioning to ‘peppercorn’ levels over a 20-year period will cost in the region of £30bn.

The figure is understood to mirror the Treasury’s internal estimate of the cost to investors, according to insiders.

Mr Gove has been determined to overhaul what he describes as the “feudal” leasehold system and modernise it to make it fairer to homeowners.

His proposals, however, have alarmed the pensions industry and City investors such as the asset management arms of big insurers which have amassed large ground rent portfolios.

Last month, The Sunday Times reported that Mr Gove had been forced to water down his reform blueprint after an intensive industry lobbying campaign and opposition from some cabinet colleagues.

Talks involving the Department for Business and Trade, the Treasury and Downing Street have been taking place for months.

Government lawyers reportedly raised concerns about the prospect of legal challenges to moves to retrospectively amend property rights.

However, in an interview with the Financial Times on Thursday, Mr Gove signalled that he would push ahead with his plans as soon as next week.

The potential announced was described as “a compromise agreement” which had been signed off by Number 10.

City sources said the industry was preparing to talk more openly about the financial impact on pensioners if the reforms progressed further.

“£30bn is the ballpark figure that the City and Treasury are now thinking about in terms of the impact on pension funds and insurers,” said one insider on Friday evening.

A DLUHC spokesperson said: “It is not fair that many leaseholders face unregulated ground rents for no clear service in return.

“As set out in our 2019 manifesto, we are committed to reducing ground rents to a peppercorn, and we have already legislated to remove ground rents for new residential leases.

“We recently consulted on a range of options to cap ground rents for existing residential leases and we are carefully considering the responses.

“We will make an announcement in due course.”

The Treasury declined to comment further, while the Association of British Insurers also declined to comment.