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Sunak Fires Zahawi Citing ‘Serious’ Ethics Breach Over Taxes

Bloomberg logoBloomberg 1/29/2023 Kitty Donaldson

(Bloomberg) -- Prime Minister Rishi Sunak fired Nadhim Zahawi, citing “serious” breaches of ethics rules after revelations about the Conservative Party chairman’s tax affairs made his position untenable. 

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In a letter to Zahawi on Sunday, Sunak said that the independent review of the matter had been concluded and “it is clear that there has been a serious breach of the Ministerial Code. As a result, I have informed you of my decision to remove you from your position.”

Zahawi had acknowledged he’d been “careless” with his taxes and had settled a retroactive multi-million pound bill with the country’s tax collector. That — and the revelation that he’d also incurred a tax penalty for not paying the right amount at the correct time led to mounting pressure from within his own party for him to quit, or for Sunak to fire him. 

The lengthy controversy had threatened to knock Sunak’s administration off-course, distracting from his stated priority of reviving the moribund British economy as well as his bid to reverse the slump in the Tories’ prospects two years before a general election. 

The situation allowed Labour leader Keir Starmer, whose party currently holds a wide lead over the Conservatives, to accuse Sunak of being “hopelessly weak” and to draw a link between the party chairman’s tax affairs and Sunak’s wife Akshata Murty, who had enjoyed so-called non-dom tax status in the UK. 

UK Tories Lag Labour by More Than 20 Points in the Polls | Sunak faces challenge to repair his party's standing with electorate © Bloomberg UK Tories Lag Labour by More Than 20 Points in the Polls | Sunak faces challenge to repair his party's standing with electorate

Zahawi is the second Cabinet minister to exit Sunak’s three-month-old government over ethics infringements, allowing Labour to revive allegations of “Tory Sleaze.” Gavin Williamson quit as a minister without portfolio in October after allegations he bullied staff. Deputy Premier Dominic Raab is the subject of an ethics probe after multiple bullying complaints. 

After initially standing by Zahawi, Sunak commissioned the ethics inquiry, saying that his colleague’s Jan. 14 statement about his tax payments had changed the calculus. On Wednesday, he told the Commons it was right to let “due process” run its course and await the outcome of the investigation, suggesting also that the easy option would have been to fire him right away. Stephen Massey, chief executive of the Tory party, will take over party affairs on an interim basis until a successor to Zahawi is named. 

Zahawi himself had spent several days telling colleagues he’d done nothing wrong, according to Conservative MP Bim Afolami. But anger among Tory lawmakers was growing. In a letter posted on Twitter on Sunday, Zahawi didn’t acknowledge the tax issue and pledged to continue to support Sunak from the back benches. 

A Cabinet minister and multiple Conservative MPs said privately Zahawi should resign. On Thursday a report in The Times suggested Sunak was “livid” with Zahawi, a claim denied by the prime minister’s office. 

Read More Sunak Takes UK Cabinet on Retreat With Tories Gunning for Zahawi

Zahawi said in his Jan. 14 statement that His Majesty’s Revenue and Customs concluded he’d been “careless and not deliberate” in his tax dealings. His tax bill, which related to the sale of shares in the YouGov polling company he co-founded, totaled £4.8 million ($5.9 million), including a 30% penalty, according to a person familiar with the matter. The settlement took place while Zahawi was Chancellor of the Exchequer in mid-2022. 

“There are no penalties for innocent errors in your tax affairs,” HMRC Chief Executive Officer Jim Harra told Parliament’s Public Accounts Committee, speaking generally on the subject on Jan. 26. Carelessness can be likened to the longstanding concept in general law of negligence, according to HMRC guidance. 

Tory MPs have also described as unacceptable reports that Zahawi threatened legal action against those seeking to publicize his dealings with the tax authority. Dan Neidle, a blogger and former head of tax at Clifford Chance who made a number of revelations on the matter last year, told Bloomberg Radio earlier this week that he’d been a target of such an attempt.

“Instead of saying there was perhaps a problem, he simultaneously issued a string of denials threatened to sue me and others reporting on it,” Neidle said.   

Zahawi, 55, was born in Baghdad to Kurdish parents and came to the UK as a boy after his family fled Saddam Hussein’s Iraqi regime in the 1970s. Unable to speak English when he arrived, Zahawi has spoken about how he was bullied at school. 

He trained as a chemical engineer at University College London and went on to work in the oil industry. A self-made millionaire through his role at YouGov, Zahawi entered Parliament in 2010, where he has represented Stratford-on-Avon ever since. He backed Brexit in 2016.

He rose to prominence for his role in overseeing the nation’s successful vaccine roll-out during the Covid-19 pandemic under then Prime Minister Boris Johnson, and was widely regarded within the Conservative Party as a safe pair of hands with a record of delivery. He served briefly as Chancellor after Sunak quit the post in July over Johnson’s violation of Covid restrictions in the so-called Partygate scandal. Sunak’s departure led to the collapse of the Johnson government.   

(Adds other resignations in sixth paragraph, background on Zahawi in final two paragraphs.)

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