Rishi Sunak has ordered a potentially far-reaching investigation into Nadhim Zahawi as he defied calls to sack the Tory party chairman over the multimillion-pound tax dispute he resolved by paying a penalty.
The Prime Minister retained confidence in the former chancellor on Monday even as Downing Street indicated Mr Sunak did not know about the penalty when he defended Mr Zahawi in the Commons.
Mr Sunak said he was not leader at the time of the allegations and insisted the advice he received when he gave Mr Zahawi a senior role was that there was “no reason” not to appoint him.
No 10 said the inquiry by new ethics adviser Sir Laurie Magnus will focus on Mr Zahawi’s ministerial declarations, but it could extend to his prior tax arrangement and whether he lied to the media.
The investigation could also include claims Mr Zahawi falsely told officials he had not exchanged WhatsApp messages with Conservative former prime minister David Cameron about Government loans for Greensill Capital before it emerged they were deleted.
Mr Sunak has defied Labour demands to sack the minister, who insisted that he had “acted properly throughout” amid concerns about the settlement, estimated at around £5 million.
Launching the investigation, the Prime Minister acknowledged “clearly in this case there are questions that need answering”.
“That’s why I’ve asked our independent adviser to get to the bottom of everything, to investigate the matter fully and establish all the facts and provide advice to me on Nadhim Zahawi’s compliance with the Ministerial Code,” he told broadcasters during a visit to a Northampton hospital.
“I’m pleased that Nadhim Zahawi has agreed with that approach and has agreed to fully co-operate with that investigation.”
Mr Zahawi was understood to have paid a penalty – reported by the Guardian to be around 30% – during the time he was chancellor under Boris Johnson between July and September.
Mr Zahawi’s tax affairs was one of two scandals Mr Sunak was dealing with relating to Mr Johnson’s period in No 10, with BBC chairman Richard Sharp reportedly helping the then-prime minister secure a loan of up to £800,000.
Mr Sunak distanced himself from both allegations, saying the chairman’s appointment was made by “one of my predecessors”, while saying he was not leading the country at the time Mr Zahawi was appointed chancellor.
“The questions that are being asked relate to a time before I was Prime Minister. When I was Prime Minister, the advice that I received was that there was no reason why Nadhim Zahawi could not be appointed to Government,” Mr Sunak said.
Just last Wednesday, Mr Sunak had told MPs during Prime Minister’s Questions that Mr Zahawi had “already addressed this matter in full”.
The Guardian’s report on the penalty came on Friday. The following day Mr Zahawi, the MP for Stratford-upon-Avon, released a statement insisting his “error” over shares in the YouGov polling company he co-founded was “careless and not deliberate”.
Mr Sunak’s official spokesman said the investigation was being launched because “subsequently over the weekend additional facts have been placed in the public domain by the chairman”.
Pressed on whether Mr Sunak knew last week that Mr Zahawi had paid a penalty to HMRC, the spokesman said: “That’s not my understanding.”
Sir Laurie’s investigation will be “focused on potential breaches of the Ministerial Code relating to ministerial declarations”.
But Mr Sunak’s spokesman added that the adviser could widen the probe to cover topics including potentially misleading statements by Mr Zahawi.
In July, Mr Zahawi, then running for the Tory leadership, told Sky News he was “clearly being smeared” about his tax and insisted: “I’ve always declared my taxes, I’ve paid my taxes in the UK.”
Asked if the investigation could include the WhatsApp revelations reported by the Times, the official said: “I’m not going to be prescriptive into what may or may not be relevant when establishing potential breaches of the Ministerial Code.”
He could not give a deadline for when the investigation will conclude, only saying it was hoped to be “as quickly as possible”, and acknowledged Mr Sunak had the power to override it.
In a statement, Mr Zahawi said: “I welcome the Prime Minister’s referral of this matter to the independent adviser on ministerial standards. I look forward to explaining the facts of this issue to Sir Laurie Magnus and his team.
“I am confident I acted properly throughout and look forward to answering any and all specific questions in a formal setting to Sir Laurie.”
He said it would be “inappropriate to discuss this issue any further” while continuing as Conservative chairman.
Deputy Labour leader Angela Rayner said: “The PM’s pathetic attempt to pass the buck is simply not good enough.
“Rishi Sunak should get a grip – and dismiss Nadhim Zahawi from his Cabinet immediately.”
Liberal Democrat deputy leader Daisy Cooper added: “If Sunak won’t do the decent thing and sack Zahawi, the least he can do is suspend him for the duration of the investigation.”
Mr Sunak insisted it is “longstanding practice” for Mr Zahawi to continue in the role while under investigation.
YouGov’s 2009 annual report showed a more than 10% shareholding by the Gibraltar-registered Balshore Investments Ltd, which it described the company as the “family trust of Nadhim Zahawi”.
On Monday, Mr Zahawi did not acknowledge the peril he was in or answer questions asked by waiting journalists as he arrived at Conservative Campaign Headquarters.
Former Downing Street communications chief Sir Craig Oliver said Mr Zahawi is “hanging on by a thread”.
“I think he’s in serious trouble, you cannot be Conservative Party chairman and not go out and face the media,” he told BBC Radio 4’s Today programme.
“The problem for Nadhim Zahawi at the moment is it doesn’t all add up. ‘Why did you take the job as chancellor when you were clearly in dispute with the HMRC?’ And he is yet to come out with an answer that is satisfying or feels comfortable on that point.”
Deputy Labour leader Ms Rayner will use a Commons urgent question to demand answers from the Government, asking about the Cabinet Office’s “processes for vetting ministerial appointments and managing conflicts of interest”.