Energy suppliers will spend £500m helping customers with their energy bills this winter, after the government helped broker a deal involving 12 of the biggest companies in the UK.

Suppliers will spend the money in a variety of ways, including putting credit on some customers’ bills, writing off the debts of others and putting credit on prepayment meters, sources told the Guardian.

Ministers are hoping the deal will help to soften the impact of the decision to cut winter fuel payments for 10 million pensioners, which the government admitted on Tuesday would push 100,000 more people into relative poverty by the end of the decade.

The deal was announced by the government alongside an update to the warm homes plan, which provides money for people looking to make their homes more energy-efficient. Sources say that together the schemes will amount to £1bn in support to bring down household energy bills.

A government source said: “We recognise bills are too high and people are struggling. The long-term plan is to move to clean power by 2030, which will take away the rollercoaster of bills going up and down in response to supply shocks. But in the transition to that there is still stuff we can do to help with bills.”

Dhara Vyas, the chief executive of the industry group Energy UK, told the Guardian: “We are looking at another difficult winter for a lot of people and we are aware that bills are high and also that debt is increasing. I am really pleased that the industry has made more available than ever before.”

Ministers continue to face pressure over the cost of living, with consumer price inflation having risen to 2.3% last month, above the Bank of England’s 2% target.

Ofgem, the energy regulator, is expected on Friday to raise the quarterly industry price cap for January. Cornwall Insight, the energy consultancy, has said it expects Ofgem to announce that the average household’s energy bills will rise by 1% from £1,717 to £1,736 on 1 January.

Labour promised in opposition that its energy plans would bring bills down by £300 by the end of the decade, but has said relatively little about that pledge since entering government.

Modelling released by the Department for Work and Pensions on Monday showed that the cuts to winter fuel payments would push 50,000 more pensioners into relative poverty next year, and an additional 50,000 by the end of the decade. The payments were due to start being made into pensioners’ bank accounts this month.

Energy suppliers announce measures to help customers manage through the winter every year, but government sources said they had pushed them to go further this time. They said it was the first time the industry body, Energy UK, had helped the government to coordinate winter support on this scale.

Some of the money, much of which is due to come from the big six suppliers, will go to charities helping more vulnerable customers.

Sources also said the energy price cap would prevent companies from putting other customers’ bills up to help pay for the support packages. Instead, some are understood to be financing the move through reserves, loan facilities or smaller profit margins.

The government has also announced more details of its warm homes plan, under which households will be able to claim £7,500 to buy a heat pump to replace their existing boiler. Changes to the scheme will also mean households no longer have to apply for planning permission to install one.