Shabana Mahmood expected to be named Andy Burnham’s chancellor | Shabana Mahmood

Shabana Mahmood has emerged as a frontrunner to become Andy Burnham’s chancellor after a fierce briefing battle over the possibility of Ed Miliband being appointed to the powerful role.

Senior Labor officials familiar with Burnham’s thinking told the Guardian they expected the home secretary to move to the Treasury due to concerns Miliband would become the target of criticism of the government.

But sources within Burnham’s team continued to insist no final decision had been made, adding that her cabinet would only be appointed after she became 10th in line on Monday. The Prime Minister was outside Westminster on Wednesday for a family event.

The debate over who will take over as chancellor from Rachel Reeves has divided Burnham’s allies for weeks. Miliband’s supporters argue he is the only candidate who can challenge the Treasury’s orthodoxy while sharing the next prime minister’s vision for the UK economy.

But while big companies are skeptical of the move and some of the biggest unions oppose it, critics of the energy minister within the party – who say appointing him would shake markets – told the Guardian they believed they had succeeded in preventing the appointment.

Some MPs have also warned that, regardless of Miliband’s popularity with party members, giving the second most powerful job in government to the politician who led Labor to its 2015 general election defeat could be a risky choice for voters.

Sources told the Guardian that Louise Haigh, one of Burnham’s closest allies, had concerns about Miliband’s appointment. “The access talks certainly focused minds on the economy and the challenges of the fall,” they added.

Senior figures with knowledge of Burnham’s decisions suggested Miliband would instead move to the Foreign Office, potentially taking on the responsibility of first foreign secretary, a post seen as equivalent to deputy prime minister. His older brother David Miliband was also tipped for the role.

They suggested that former health secretary Wes Streeting, who left the leadership of Keir Starmer, should take over as home secretary from Mahmood. Although he appears to the right of Labour, and is tough on crime, he is softer on immigration.

But there were concerns within the party that Burnham might change her mind on such an important decision as chancellor, which plays more of a role in determining the direction of the government than any other cabinet post. “I think Ed is where you spend your political capital. Otherwise, what’s the point?” A Labor Party MP said this.

Burnham’s team insisted decisions on the make-up of the cabinet were mostly speculation, adding that she was keeping a “very tight grip” on the matter and thought only Haigh and his chief of staff, James Purnell, were aware of the affair.

“We’re in a world where people are informed about getting in and out of work by people who say they know but probably don’t,” one source added.

Sterling rose and the UK government’s borrowing costs fell slightly on Wednesday following reports that Mahmood was the favorite to land 11th and the 10-year bond yield fell 0.06 percentage points on the day.

City investors have expressed unease about Miliband, fearing the appointment of one of Labour’s most ideologically driven senior figures would lead to a radical shift in economic policy financed by higher levels of government borrowing.

By contrast, Mahmood has little record of holding strong views on economic issues, but was seen as the more centrist option in the city given his hard-line stance on immigration. He also has a reputation at Westminster for dealing with difficult departments and standing up to the civil service when necessary.

Labor insiders have argued that the home secretary, who served as shadow Treasury secretary under Miliband when he was Labor leader, is further to the left on economic issues than on social issues, which could put him more in line with Burnham on areas such as fiscal devolution and public control of public services.

Mahmood is understood to have spoken to Burnham in recent days and discussed wider political strategy outside the Home Office, including the economy, but allies insisted he had not been told he would go to the Treasury.

If confirmed as chancellor on Monday, Mahmood’s first big task will be to prepare the emergency living expenses package. This could include targeted support for energy bills, freezing rents and capping bus fares.

He will then begin work on the autumn budget, with Burnham telling podcaster Gary Lineker on Wednesday that he “might want a little bit more” from the tax as he refused to rule out imposing a wealth tax.

“I believe we need a greater sense of justice and we need people to feel like things are being done right and fairly,” he said.

“But at the same time, you know, I don’t want to be perceived as someone who comes in with grudges and agendas and immediately finds a group and demonizes or creates a new way to divide people.”

However, he stated that he did not rule out taking such a step in the future and added: “At some point, this may have to ask a little more. But, you know, these decisions are not for now. These are for another day.”

Miliband’s allies angrily accused his foes in the party of coordinating a campaign to sabotage his prospects by insisting that he should remain a candidate for the role of chancellor and that Mahmood will not fare as badly in the markets as some believe.

“You need someone with the necessary experience who doesn’t have his own power base,” one minister said. “And I’m also not sure the markets will ultimately like him; he’s a protectionist.”

One MP who is a close supporter of Burnham said: “I think not appointing Ed would suggest that Andy is less well-established than we think and is very susceptible to pressure, even if he’s not yet at work.”

Another senior MP said: “Ed is Labour’s main choice in parliament because he has the experience and vision to drive a credible, progressive agenda through HM Treasury. We also have a budget to get it right and we need a big hitter with the economic experience to get in there and make it happen.”

Burnham, who took over as Labor Party leader on Friday and prime minister on Monday, is expected to bring former deputy prime minister Angela Rayner and Labor Party deputy leader Lucy Powell back into the cabinet.

Haigh is expected to be given a role at the heart of government, potentially as principal secretary to the prime minister or running the Cabinet Office. Chief whip Jonathan Reynolds is said to be hopeful of returning to his former job as business secretary, while Burnham’s close allies Miatta Fahnbulleh and Anneliese Midgley are expected to find jobs.

Allies say Mahmood’s possible appointment and Graeme Cooke’s appointment as No 10 policy chief signals Burnham wants to seize the domestic policy agenda.

A former colleague said: “Appointing Graeme is a sign of a prime minister who will take much more responsibility for policy outcomes. Andy says: ‘I’m the one making the decisions and you’re the ones finding ways to implement them for me.'”