LONDON — Britain’s new Prime Minister Liz Truss faced her first big challenge this week since taking office a month ago, introducing and then retracting a controversial cut in income tax for top earners that was part of her budget plan aimed at offsetting the country’s deepening economic crisis.
Truss’s unusual move on Monday, which appeared to be in response to broad criticism that sent the pound sterling plummeting last week to an all-time low, ended up rattling the new prime minister’s own Conservative party and prompting some to question whether she should be ousted.
The 47-year-old Truss won a leadership contest on September 6 following a fierce internal battle to replace former Prime Minister Boris Johnson as both Conservative party leader and prime minister.
Stepping into the role just days before the death of Queen Elizabeth II and as Britain faces soaring inflation driven by rising food and energy prices, Truss promised to rebuild the economy as the country looks to steady its path following Brexit, the decision to withdraw from the European Union in 2016; more recently the COVID-19 pandemic; and the impact of Russia’s war in Ukraine.
Some critics have blamed Brexit for the problems, but Nile Gardiner, Director of The Heritage Foundation’s Margaret Thatcher Center for Freedom, told Fox News Digital that is not the case.
Gariner said it is "not due to Brexit [but] the result of too much government spending during the COVID era, soaring energy costs, and a lack of pro growth policies. The Eurozone is doing worse than the U.K., with soaring inflation and a massive energy crisis."
However, the U.K. government’s announcement of a new stimulus package with 45 billion pounds ($50 billion) in tax cuts – to be paid for by government borrowing – created economic turmoil in both the U.K. and beyond.
A classic Thatcherite approach that would have cut income taxes for the country’s top earners and scrapped a cap on bonuses for bankers was fiercely criticized for coming at a time when millions of Britons face soaring energy bills, and a cost-of-living crisis dubbed the worst in a generation.
The proposal sent the pound to its lowest ever rate against the dollar and forced the Bank of England to take a $70 billion emergency step to buy bonds in order to stabilize the currency. The daring plan also appeared to bolster the rival Labor Party, putting its leader Kier Starmer ahead in the polls, which sent ripples of doubt through Truss’s own party.
Initially, Truss and her Chancellor of the Exchequer Kwasi Kwarteng defended the plan, but in a dramatic about-face at the Conservative party’s annual conference in Birmingham on Monday, they announced that they would abandon the more controversial parts of the plan, a move that immediately strengthened the pound.
"The British government unveiled a series of major pro-growth tax-cutting measures in order to kickstart the British economy, which has been facing massive headwinds over the course of the last few years and Liz Truss, as a committed Thatcherite, believes in free market policies," Gardiner noted.
He also noted that while the proposal also drew criticism from the Biden administration and the International Monetary Fund, mostly because of the cuts to the top-tier taxpayers, he said that reversal "sent the wrong signal."
"It is vital that the British government continues to hold firm on tax cuts," he said. "A U-turn does not send the right message at this time, and it actually undermines the case the British government is making for a tax-cutting agenda."
Gardiner concluded that "It is vitally important that the Conservative government stay the course in terms of the big picture," adding, "Implementing more tax cuts and a pro-growth agenda based on economic freedom and liberty, that’s absolutely vital for revitalizing the British economy."
Truss, and Kwarteng’s, flip-flop was also eyed warily by elements of the Conservative party, with some suggesting that she might be finished before she has even begun because backing down on policy revealed her weaknesses, which will likely be exploited by the opposition until there is another national election in two years.
Alan Mendoza, executive director of the Henry Jackson Society, told Fox News Digital, however, that "the Prime Minister had no choice but to U-turn on her top rate tax cuts because she did not have the numbers to win a vote on them."
"Tory MPs have been concerned about the perception that the tax cut will help the rich during a cost-of-living crisis that mostly affects the poor," he said, adding "The bigger problem for Truss is that the markets think the U.K. economy is so weak that the entirety of her tax-cutting plan might need to be junked unless the Chancellor can return confidence by revealing his spending plans."
Mendoza also said that the U.K. crisis should be a "lesson for the U.S. and Europe: don’t announce tax cuts without explaining how you will pay for them and be wary of front-loading debt in an era of uncertain economic growth, as the markets will make you pay for it."
The Associated Press contributed to this report.