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23 January 2023

Can Nadhim Zahawi survive?

While the former chancellor was settling his dispute with HMRC, a draconian tax rule was pushing thousands into hardship.

By Rachel Wearmouth

The Tory chairman Nadhim Zahawi remains in post despite widespread reports that he paid HMRC a penalty when settling a tax dispute – while serving as chancellor. The cabinet minister has not disclosed the size of the settlement but tax experts estimate the total amount to have been £4.8m.

Zahawi’s allies are briefing journalists that he has no intention of resigning. The backdrop to this row is a cost-of-living crisis, widespread strikes over pay, and public services still struggling to recover from Covid and a brutal decade of austerity.

Can Zahawi survive the tax row and how damaging is it for the government?

This morning, the Prime Minister ordered his independent ethics adviser to look into the case, admitting there are “questions that need answering”. A lengthy investigation means it could be some time before his future as a Cabinet minister is decided.

It is notable, however, that the Foreign Secretary James Cleverly failed to offer a full-throated defence of Zahawi on the broadcast round that followed the reports, on Sunday 22 January. And on the following morning, no minister was made available to speak to journalists. With few friends speaking up and a prime minister who has staked his premiership on providing “integrity, professionalism and accountability at every level”, Zahawi is clearly vulnerable.

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[See also: Rishi Sunak will further alienate his MPs with his comments about taxation “idiots”]

I’ve written before about how Rishi Sunak’s own issues with tax may provide Zahawi with some cover (we are still waiting for the PM to publish his own tax returns, despite his pledging to do so by Christmas 2022. But there is one group who may find Zahawi’s refusal difficult to accept: those facing severe financial hardship due to the loan charge.

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When the government clamped down on tax avoidance in 2019, a backdated charge hit agency workers – including nurses, teachers and social workers – who were previously advised salary payments made as loans were not taxable. None of the tax advisers who arguably mis-sold such schemes has been targeted by the government. Meanwhile, some of those now being pursued for huge sums of backdated tax by HMRC are being pushed into financial peril.

During Zahawi’s brief period at the Treasury last year, people buckling under the weight of repayments begged the chancellor, via an all-party group of MPs, to show “compassion and common sense” and find a fair resolution. This call – the Yorkshire Post’s Greg Wright has doggedly followed this story throughout – as well as many others before it, was ignored. Given what we now know, perhaps Zahawi was too busy settling his own tax affairs to focus on the plight of others.

Tragically, many facing the backdated taxes are not in a position to settle so easily; nor can they afford expensive lawyers to fight their corner. They are, compared to some, easy targets. The impact on the mental health of some of those affected is reported to be devastating. A tenth suspected suicide, thought to have happened over Christmas, has been linked to the loan charge, according to the All-Party Parliamentary Loan Charge and Taxpayer Fairness Group.

Zahawi may yet endure as Tory chairman. If he does, perhaps the government could also investigate whether HMRC is treating loan charge victims fairly.

This piece first appeared in the Morning Call newsletter; subscribe here.

[See also: Nadhim Zahawi’s tax affairs undermine Rishi Sunak’s call for Conservative “accountability”]

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