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26 January 2023

Rishi Sunak will pay a price for not sacking Nadhim Zahawi

By waiting until the investigation into the Tory chairman is complete, Sunak has appeared passive and weak.

By David Gauke

There is an inevitability about Nadhim Zahawi’s departure from office and when something is inevitable it is usually best to get it out of the way quickly. It would be best for the Prime Minister, best for the government and probably best for Zahawi himself.

This is a view that many Conservative MPs hold but few express publicly. This is, in part, because Zahawi is well-liked and well-regarded by his colleagues as a minister and now the party chairman. A similar reticence was not evident when Gavin Williamson found himself in trouble although, as it happens, Rishi Sunak would have benefited in recent days from Williamson’s advice. More ruthlessness has been needed.

Zahawi’s popularity, however, will not be enough to save him. There are just too many difficult, if not impossible, questions for him to answer.

The original structuring of his tax affairs looks questionable and the indefatigable tax lawyer Dan Neidle has indeed questioned them extensively. Too many questions remain unanswered. In particular, was Zahawi really never a beneficiary of the Gibraltar-based trust at the centre of the debacle, as he has frequently maintained? There is evidence that suggests otherwise.

Zahawi’s response when questions were raised in July 2022 looked unconvincing at the time but it is very hard to reconcile his position then with what we now know and his subsequent acceptance (within a handful of weeks) that he owed millions of pounds in tax. To be fair, he went from agreeing to serve as Boris Johnson’s chancellor to telling him to go to backing him and then to publicly calling for Johnson’s resignation within three days, but going from saying that his tax affairs were up to date to settling an additional £5m in tax shortly afterwards is a striking inconsistency.

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Zahawi did not just deny allegations of any irregularities in his tax affairs – he threatened to sue those who questioned the arrangements. It now appears that he was threatening to sue those who were telling the truth.

Despite the protestations, there was a problem with Zahawi’s tax situation. The Observer reported in July that an issue had been flagged with Johnson before Zahawi was appointed chancellor. If true (and this is something that we should get to the bottom of) that would be extraordinary. At the time Johnson’s government was collapsing because of emerging evidence that the prime minister had appointed Christopher Pincher to ministerial office while being aware of concerns about Pincher’s behaviour. Knowingly appointing a new chancellor who was under investigation by HMRC, if that was the case, would surely be too irresponsible even for Johnson. Wouldn’t it?

Either way Zahawi found himself as chancellor in a very difficult position and, it appears, approached HMRC to resolve the issue. From what we know it appears that HMRC played this by the book, treated Zahawi like any other taxpayer in these circumstances and determined the appropriate outcome (a criminal prosecution would have been very unlikely in a case of this sort). I very much doubt there were any negotiations about the settlement numbers; Zahawi would have been presented with HMRC’s conclusions and could either accept them or challenge them at the tax tribunal. He settled, accepting that he was at fault for underpaying millions of pounds in tax.

Zahawi had put HMRC in a very awkward position and, inevitably, some will question if somehow he got special treatment. There is no evidence that he did, but perception matters. By international standards we have a tax-compliant culture in the UK but if large parts of the public think that the well-connected can get away with dodging their responsibilities severe damage can be done. The standards that apply to Treasury ministers, in particular, have to be high.

Finally, it does not appear that Zahawi levelled with Sunak before the Sun on Sunday scoop that he had paid a penalty as part of his settlement with HMRC. Sunak is entitled to be livid with both Zahawi and Simon Case, the cabinet secretary, who also failed to raise the issue when Zahawi was appointed to Sunak’s cabinet.

Zahawi cannot avoid doing interviews forever and when he does there will be countless questions for him to answer. It might be possible that he can answer them satisfactorily but it is not obvious how. It would certainly require Sunak and the Conservative Party to expend a lot of political capital if Zahawi were to stay in office.

Sunak would have been entitled to fire Zahawi on multiple grounds. He has not done so but has asked his ethics adviser, Laurie Magnus, to investigate. The chances of Zahawi being cleared on all counts must be vanishingly slim and so, once the report is complete, he will leave office.

At that point Sunak will be able to claim that he followed due process and that this was the right way to go about such matters. Left unspoken will be the point that there will be fewer complaints from the backbenchers about the departure of the popular Zahawi; there will be no blood on the hands of the Prime Minister.

But the story will drag on until the report is completed, Sunak will look too passive and accusations of weakness will be made. The Prime Minister is a reluctant risk-taker when it comes to confronting some of his backbenchers but there will be a price to be paid if he is consistently too hesitant in taking action. This is a matter that should have been resolved by now.

[See also: Why Labour thinks it has solved the Brexit conundrum]

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