Gordon Brown is considering giving responsibility for energy policy to the Environment Department in a move that would increase the role of David Miliband.

The Chancellor may also revamp the Industry Department to give it responsibility for science, technology, skills, innovation and business.

Treasury insiders have strenuously denied that enhancing Mr Miliband’s Department for Environment, Food and Rural Affairs would be a sweetener to discourage him from standing against Mr Brown in the leadership contest. They said that Mr Brown had considered for some time whether it would make sense to have the two areas in the same department.

But the move would cement Mr Miliband’s position as one of the leading players in a Brown government, heading the attack against the opposition parties on green issues. Friends of the Environment Secretary say that it would be seen as Mr Brown recognising that Mr Miliband is the only serious heavyweight challenger to him.

Mr Miliband’s allies and Downing Street sources said it remained highly unlikely that he would stand against Mr Brown. They denied that the pensions row and apparent encouragement to stand from John Reid, the Home Secretary, had changed Mr Miliband’s position. Some politicians believe that Mr Miliband has allowed himself a “get-out” position that would enable him to stand if the local elections go disastrously for Labour and Mr Brown is seen to be a principal cause of its difficulties.

But some of Mr Miliband’s natural backers, such as Andy Burnham, the Health Minister, and Liam Byrne, the Home Office Minister, have already lined up publicly with Mr Brown, having accepted Mr Miliband’s reluctance to put his name forward.

It was reported at the weekend that Mr Reid believed Mr Miliband had to show the boldness to stand and his chance might not return. A suggestion that Mr Reid would stand if Mr Miliband did not is believed to have led to a sharp conversation between the Home Secretary and the Chancellor. In recent weeks relations between the two had improved and it had been predicted that Mr Reid had a good chance of staying on as Home Secretary in a Brown government.

Insiders close to the Chancellor are playing down suggestions that he wants to turn the Environment Department into a “super-ministry”, but admit that he is keen on ending policy conflict between the environment and industry departments on green issues, where the DTI has to be seen to be standing up for business interests and the Environment Department for the green lobby.

Irrespective of whether Mr Miliband stands against him, Mr Brown is certain to give him a substantial role in his government. He believes that the environment will be a key battleground in the next general election and is understood to want Mr Miliband to spearhead the attack against David Cameron, the Tory leader.

Downing Street insiders say that the pensions row has damaged Mr Brown but he could recover if he uses the experience to his benefit. “Things have gone well for Gordon and it has been fairly easy to control things from the Treasury. He lost control of the agenda. It was a crisis about a ten-year-old decision. When he gets in here he will have crises about ten-minute-old decisions. How he reacts to them will decide if he succeeds.”

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