Rishi Sunak under pressure after sacking Nadhim Zahawi over tax storm

<span>Photograph: Toby Melville/Reuters</span>
Photograph: Toby Melville/Reuters

Rishi Sunak has sacked the Conservative party chair, Nadhim Zahawi, for serious breaches of the ministerial code over his tax affairs, after weeks of damaging headlines undermined the prime minister’s attempts to restore government integrity.

An investigation by Sunak’s new ethics adviser, Sir Laurie Magnus, concluded that Zahawi had broken the rules by repeatedly failing to declare an HMRC investigation into his tax affairs, which concluded with a £5m settlement including a penalty.

Zahawi failed to apologise for his actions, instead turning his fire on the media, which he said had gone beyond legitimate scrutiny of his tax affairs. The ethics adviser, however, criticised him for “untrue” public statements over the HMRC investigation.

In a letter to Zahawi after an early phone call on Sunday, Sunak said his ethics adviser had concluded there was a “serious breach” of the ministerial code. “As a result, I have informed you of my decision to remove you from your position,” he wrote.

Related: Nadhim Zahawi: the extraordinary rise and fall of ‘the boy from Baghdad’

Zahawi’s departure – as the second cabinet minister to go in Sunak’s first three months in office – comes after a difficult few weeks for the prime minister, who had pledged “integrity, professionalism and accountability at every level” of his government on entering No 10.

His hopes of moving on from the probity row are likely to be short-lived, with an internal inquiry into bullying allegations against his deputy prime minister, Dominic Raab, due to report within weeks.

Sunak’s judgment in reappointing Zahawi has come under question from some Conservative MPs, while others felt that the prime minister, who acted within hours of receiving Magnus’s report on Sunday morning, should have sacked him earlier.

The prime minister, who will be trying to refocus attention on the NHS during a visit to north-east England on Monday, also faces scrutiny over what he knew about the minister’s tax affairs and when, amid suggestions he was told there could be a reputational risk to the government when he appointed him in October.

Downing Street insiders said Sunak would not be rushing to replace Zahawi as Tory party chair, and he was expected to replace him with a close ally when he does, although Tory MPs have suggested that Penny Mordaunt, the Commons leader, Andrew Mitchell, a Foreign Office minister, and Grant Shapps, the transport secretary, could be candidates.

George Osborne, the former chancellor, suggested Sunak’s premiership risked being brought down by scandals swirling around the Tories, with the high-stakes Commons inquiry into whether Boris Johnson misled MPs over Partygate due to begin hearings within weeks.

“At the moment he is being pulled down by a series of scandals which do not directly involve him, are kind of hangovers, if you like, of the Johnson era. But he needs to do something pretty quickly,” he told Channel 4’s Andrew Neil show.

“I think that he’s going to try and define himself now as ‘the sleaze buster’, but it’s extremely hard … It’s still ‘we’ll see’ with Rishi Sunak, but he knows that as each week passes, as each new scandal unfolds, the window for action gets smaller and smaller.”

Magnus found that Zahawi breached the ministerial code on seven separate occasions by repeatedly failing to declare his tax affairs and denying media reports that he was under investigation by HMRC, then failing to correct the record. His investigation took six days to complete.

The HMRC investigation into Zahawi began in April 2021, and there was a face-to-face meeting with the minister in June 2021. In his first breach of the code, Zahawi did not declare the matter, later telling the ethics adviser he had failed to realise it was a formal investigation. But Magnus said he should realised it was an investigation and treated it as a “serious matter”.

The next two breaches came on 15 September 2021 and 5 July 2022 when Zahawi was appointed first as education secretary and then as chancellor, by Boris Johnson, but failed to declare the HMRC investigation to senior officials until after 22 July 2022.

Magnus suggested the latter breach was particularly egregious as Zahawi had been put in charge of the Treasury, which has responsibility for the UK tax system. The settlement with HMRC was reached during his time there.

After media reports last July of an HMRC investigation, Zahawi issued a public statement saying the claims were “inaccurate, unfair and clearly smears”. He claimed he still did not believe he was under formal investigation, and did not update the record until 21 January this year. Magnus said the delay in correcting an “untrue public statement” was a breach of the ministerial code.

Zahawi reached an in-principle agreement with HMRC in August 2022, while he was chancellor, and made a final settlement, including a penalty for tax avoidance, for about £5m in September 2022. He did not disclose this until mid-January.

His sixth and seventh breaches of the code came when he failed to officially declare the settlement – including to officials – when he was given cabinet positions by Liz Truss in September 2022 and when Sunak made him Tory chair and minister without portfolio a month later. Zahawi finally updated his declaration of interest to include the outcome of the HMRC investigation on 16 January 2023.

In his letter to Sunak, the ethics adviser said: “Taken together, I consider that these omissions constitute a serious failure to meet the standards set out in the ministerial code.”

In his own letter to the prime minister, Zahawi did not apologise or explicitly mention the findings of the ethics inquiry into his tax affairs, and suggested that he planned to stay on as an MP “in the coming years”, despite calls to step down.

However, he raised concerns about some media conduct in recent weeks, which he said went beyond legitimate scrutiny of his tax affairs. He singled out a piece in the Independent, which first revealed the HMRC investigation, headlined “The noose tightens”, which was about calls from fellow Tories for him to resign.

Related: How we got here: events leading up to Nadhim Zahawi’s sacking for breaching ministerial code

Zahawi issued a statement the day after his HMRC penalty came to light, saying the tax office had concluded he had made a “careless but not deliberate” error.

But his statement raised as many questions as it did answers, and called into doubt earlier remarks including the assurance in July 2022 that his taxes were “fully paid and up to date”, and letters from lawyers threatening legal action against reporters who said this was potentially not the case.

The shadow cabinet minister Bridget Phillipson said: “Nadhim Zahawi failed to pay the taxes he owed in this country and tried to silence those who spoke out about it. Despite the writing on the wall, the prime minister showed himself to be too weak to act. Rishi Sunak should have sacked Nadhim Zahawi a long time ago, but in his weakness he promoted him.”

Michael Gove defended Sunak’s decision to refer the matter to an ethics inquiry before sacking Zahawi. “As a general rule I think it is important when allegations are raised that they are investigated promptly, but also we shouldn’t rush to judgment before there’s been that investigation,” he told the BBC’s Sunday with Laura Kuenssberg programme.