As a new week begins in Westminster, Nadhim Zahawi is under increasing pressure over his tax affairs. It’s one of two stories – the second being whether the BBC chairman Richard Sharp helped Boris Johnson secure an £800,000 – loan that is leading to talk of Tory sleaze. The Conservative party chairman is facing questions over his suitability to remain in government after reports emerged last week that he had agreed to pay millions of pounds to settle his tax affairs. Last year it was reported that HMRC was investigating whether Zahawi ought to have paid capital gains tax following the sale of a stake in YouGov, held by Balshore Investments.
Over the weekend, Zahawi issued a statement admitting he had agreed to settle unpaid tax relating to shares held in an offshore trust. He said that the errors made were ‘careless and not deliberate’ in the eyes of HMRC. That disclosure has led Labour to call for Zahawi to go – asking why Rishi Sunak is yet to sack him. The party is keen for anything it can use to depict Sunak as a weak leader.
This morning Sunak announced that he will take action – conceding this morning that there are ‘questions that need answering’ when it comes to Zahawi’s tax affairs: the PM’s independent ethics adviser has been tasked with investigating the Tory party chairman. This is a change in position to Sunak’s comments last week which suggested he regarded it as a matter of case closed. The investigation effectively buys both Sunak and Zahawi time – ministers can now point to a process while also saying they can’t comment on an ongoing investigation.
Zahawi played an important role in Sunak’s second attempt to become prime minister
There have also been signs of unease over Zahawi’s position in parts of the Tory party. Iain Duncan Smith has called on Zahawi to release full details of his tax affairs. Privately some MPs are questioning whether it is really feasible to have Zahawi remain in post given any media appearances will be dominated by questions on tax.
However, Zahawi’s allies have made clear that he won’t go of his own accord. Supporters of the Tory chairman say he is determined to stay on and suggest the matter is now closed. So, where is the Prime Minister in all this? No. 10 has been keen to stress that the guidance they had received from the Cabinet Office was that the tax row had been resolved prior to Zahawi’s appointment as chairman.
Could media pressure or new allegations lead to No. 10 withdrawing support? Whatever the outcome of the investigation, it’s worth pointing out that Zahawi isn’t exactly a key Sunak supporter. Zahawi was promoted to chancellor by then prime minister Boris Johnson after Sunak resigned. Reports that HMRC were looking into Zahawi’s affairs during his time as chancellor therefore raise more questions about Johnson’s judgment than Sunak’s.
However, Sunak chose to keep him in government. Zahawi played an important role in Sunak’s second attempt to become prime minister. Zahawi had backed Johnson to return – with a badly time comment piece that dropped online just as Johnson announced he would not be going for the top job after all. Zahawi then very quickly switched his support to Sunak; it added to a sense of momentum that Johnson backers were switching to Sunak, rather than offering his remaining rival Penny Mordaunt some much-needed votes.
Zahawi’s presence in Sunak’s government therefore is part of a delicate balance the prime minister has tried to strike by including MPs from most factions. It means that, even though Zahawi isn’t a long time supporter of the prime minister, it would still be painful for Sunak to lose him. But if this row – which is viewed by many MPs as politically toxic – fails to die down, he could face little choice but to do exactly that.
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