BIRMINGHAM, England - Britain's new Prime Minister Liz Truss triggered a fresh row in her party on Tuesday by suggesting that she could limit increases in benefit payments by less than soaring inflation as she seeks ways to fund her tax-cutting growth plan.
Britain's new leader has endured a tumultuous time since she came to power on Sept. 6, first leading national mourning for Queen Elizabeth before releasing an economic package that immediately roiled financial markets.
Seeking to snap Britain out of more than 10 years of economic stagnation, Truss and her finance minister Kwasi Kwarteng set out 45 billion pounds of unfunded tax cuts on Sept. 23 alongside promises to deregulate the economy to stoke growth.
On Monday they bowed to pressure to scrap the most divisive policy - eliminating the top rate of income tax for the highest earners - and are now working urgently on the full details of the plan and how they will be able to afford it without leaving a huge black hole in the country's public finances.
"We have to look at these issues in the round. We have to be fiscally responsible," Truss told BBC Radio when asked whether benefit payments would rise in line with record-high inflation to prevent the poorest in society from becoming poorer.
Immediately lawmakers in Truss's Conservative Party - some fresh from forcing top tax rate reversal - opposed any move to reduce the increases in benefits at a time when millions are struggling with higher costs of food and energy.
Penny Mordaunt, who is in Truss's cabinet of senior ministers, said benefits should rise in line with inflation. Damian Green, part of the Conservatives' centrist faction, said he doubted any real-terms reduction would pass a parliamentary vote.
"I think there will be many of my colleagues who think that when you're reaching for spending cuts, benefit payments are not the way to do it," Green told BBC Radio. Another lawmaker, Roger Gale, also signalled his opposition.
Kwarteng has set Nov. 23 as the date for his next fiscal statement but the government is considering bringing that forward.
Truss became Britain's fourth leader in six years last month, promising to reignite the economy and bring some political stability after the chaotic leadership of Boris Johnson.
Chosen by her party's members, not the broader electorate, she was not the most popular candidate among the more than 350 Conservative members of parliament and her decision to stake out a tax cut plan and then concede defeat has left lawmakers and investors questioning her judgement and authority.
At the annual Conservative Party conference in Birmingham, central England, some lawmakers and commentators have questioned whether she has a mandate to take Britain back to a 1980s-style Reagonomics policy without a national election.
The Conservatives won the 2019 election with Johnson promising to increase spending on public services.
"It is not a great thing to sell the public on one type of package and vision, and then completely flip it and appear not to care," Rachel Wolf, the co-author of the Conservatives 2019 manifesto, said at the start of the conference.
Investors have also taken fright at the new economic policy direction, hammering the value of British assets so hard that the Bank of England had to intervene last week with a package worth up to 65 billion pounds to shore up the bond market.
Mohamed El-Erian, an adviser to financial services giant Allianz, said the government needed to get its house in order. "We are not a developing country and we need to stop acting like a developing country," he told Sky News.
The BoE action has calmed markets, at least for now, while investors also took some comfort from the tax U-turn and the hoped-for move to bring forward the publishing date for the next fiscal plan from Nov. 23.
But Boris Glass, senior economist at S&P Global ratings agency, said Britain faced a difficult winter, and spending cuts could counter efforts to boost the economy.
"Unless strong medium-term growth can fully fund the extra spending, medium-term fiscal tightening appears inevitable, which may weigh on future growth," he said.
(Writing by Kate Holton, Reporting by Andrew MacAskill, Elizabeth Piper and Alistair Smout in Birmingham, Kylie MacLellan and Sarah Young in London. Editing by William Maclean and Jon Boyle)