Overall Climate of Sleaze

by Michael Patrick O'Leary

A shorter version of this article appeared in the Sunday Island on February 5, 2023.

When asked  about Conservative Party chairman Nadhim Zahawi’s  £5 million payment to HMRC (His Majesty’s Revenue and Customs) by Labour MP Alex Sobel at prime minister’s questions (PMQs) on Wednesday, January 18, Rishi Sunak said his “honourable friend” had already addressed the matter in full, and there was nothing more Sunak could add. Nothing to see, move on. At prime minister’s questions on Wednesday January 25, 2023, Sunak’s line was that he had passed the matter on to Sir Laurie Magnus, his ethics advisor, for a full investigation so he was not able to discuss it. Move on.

Magnus found that Zahawi breached the ministerial code on seven separate occasions by repeatedly failing to declare his tax affairs. Magnus also decided that Zahawi had lied to the media by denying that he was under investigation by HMRC. Subsequently, he failed to correct the record.

“The subsequent fact that the investigation concluded with a penalty in relation to the tax affairs of a Minister also requires declaration and discussion. It is a relevant interest which could give rise to a conflict, and particularly so in the case of HM Treasury Ministers and the Chancellor of the Exchequer, who has responsibility for the UK tax system. As a result of my inquiries, I conclude that Mr Zahawi failed to update his declaration of interest form appropriately after this settlement was agreed… that details of the earlier HMRC investigation and its outcome were declared.”

Magnus damningly continued: “I also conclude that, in the appointments process for the governments formed in September 2022 and October 2022, Mr Zahawi failed to disclose relevant information – in this case the nature of the investigation and its outcome in a penalty – at the time of his appointment, including to Cabinet Office officials who support that process. Without knowledge of that information, the Cabinet Office was not in a position to inform the appointing Prime Minister.”

Going back to 2021 Zahawi was under investigation but did not declare it to permanent secretaries. He claimed complete declaration of interest but did not mention the investigation. There is a credibility gap here as yawning as the Grand Canyon. Why did Sunak appoint him? Why did he not ask more questions?

Zahawi blamed the media. He claims that he told Sunak about the tax problems before Sunak made him chairman. He is still an MP. The whip has not been withdrawn.

At PMQs on February 1, Sunak dodged jibes that the whole world knew about Zahawi’s tax dodging but he appointed him anyway.

Vigilante Man

Within hours of my article on this issue  being published in the Sunday Island last week, Rishi Sunak sacked Nadhim Zahawi. I will not claim the sole credit for that. If any one man can claim credit for the toppling of Zahawi it is Dan Neidle. Who he? Neidle is a retired tax lawyer. Neidle spotted an item in the Independent newspaper which aroused his interest. The report claimed that Zahawi had been the subject of an investigation by the National Crime Agency, the Serious Fraud Office and HMRC. Neidle started digging at Companies House and elsewhere and found that Zahawi was linked to a Gibraltar-based  company called Balshore Investments, which held shares in YouGov, the polling firm Zahawi founded in 2000. Balshore was owned by a trust controlled by Zahawi’s parents. Balshore Investments held the founder shares in YouGov, which normally Zahawi would have received himself. Balshore had made a £99,000 gift to Zahawi out of its YouGov dividends — direct evidence that  he benefited from the trust. Because Balshore was based in Gibraltar, about £24 million of gains on its YouGov shares, plus dividends, went completely untaxed.

Neidle also discovered that  around the same time, Zahawi’s UK property business had received £26 million of unsecured loans from an undisclosed source. Neidle’s  theory was that Zahawi did not want to be taxed on profits from his  YouGov shares, so he put them in the company owned by his parents’ trust; he still regarded them as his assets, so he accessed the  cash through gifts and (unsecured) loans. Neidle knew that “there are half-a-dozen tax rules designed to stop this sort of thing.” Neidle surmised, accurately as it turned out, that there was approximately £3.7 million in tax that Zahawi should have paid.

SLAPP in the Face

Neidle published his  findings on his Tax Policy Associates website on July 10 and posted a thread on Twitter. He posted further  findings on July 13. On July 16, he received a message from a libel partner at Osborne Clarke, who wanted to speak “off the record”. Later that day Osborne Clarke sent an email demanding that Neidle retract his allegation of “dishonesty” that same day and said that if he published the email there would be  “serious consequences”.

The term SLAPP (strategic lawsuit against public participation) refers to a lawsuit issued with the intention of scaring off critics and publishers. Neidle is clearly no shrinking violet. On July 22, he alerted the SRA (Solicitors Regulation Authority) to the fact that Osborne Clarke were sending secret libel letters. On November 29, the SRA sent out a general note warning solicitors to stop sending libel letters that falsely claim to be confidential.

“You ain’t seen me, right?”

Neidle thinks that the libel issue is the most important in this case. He told Times Radio, “I had no idea that a senior politician could say things that were just not true and threaten to take legal action on that basis.” Neidle was not one to be cowed. “Zahawi and his advisers made the tactical mistake of accidentally SLAPPing someone with plenty of financial resources, time, litigation experience, and plenty of contacts and friends in the legal, tax and media worlds. I’m sure Zahawi spent a small fortune on advisers — but my team would probably have cost ten  times as much (had they charged me). Goliath accidentally started a fight with a bigger Goliath.”

This is  a government of bullies, con men  and liars. Bad news  about the deputy prime minister, “randomly rude Raab”, continues to surface.

Incompetence at the Heart of the British State

HMRC insiders  said major blunders had led to its releasing incorrect information. Officials say the department failed to reveal to the Financial Times in response to a legitimate query that Zahawi was under investigation because they did not do a broad enough search. HMRC now admits that it failed to properly look into the issue. The organisation responsible for collecting the nation’s taxes was too incompetent to answer a basic question.

The HMRC investigation into Zahawi began in April 2021, and he had a meeting with officials in June 2021. Did they fail to make it clear that he was under investigation? Zahawi told Magnus that  he had failed to realise it was a formal investigation. Magnus said he should have realised it was an investigation and treated it as a “serious matter”. It looks as though Zahawi may have started negotiating a settlement with HMRC while he was chancellor, from July 5 to September 6, 2022. That is a monstrous conflict of interest. It is unbelievable that Sunak knew nothing about this. Every journalist in London knew that the man responsible for the nation’s taxes had paid a huge fine for tax dodging.

Careless People

Zahawi tried to downplay the HMRC’s fine by saying that they had not criticised him harshly because they said his “error” was “careless and not deliberate”. This is disingenuous on Zahawi’s part as he must be aware (as a successful millionaire businessman who was briefly chancellor of the exchequer) that HMRC are using technical terms. They are not absolving him in any way. If they had judged that his offence was deliberate the penalty would have been even higher. By any normal standards Zahawi’s efforts to avoid tax were premeditated and persistent not accidental. Jim Harra, First Permanent Secretary and Chief Executive of HMRC, told MPs , “there are no penalties for innocent errors.”

Agile Con Men

Zahawi was careless back in 2013 when he got caught up in the MPs’ expenses scandal and “apologised unreservedly” after it was reported that he claimed £5,822 expenses for electricity for his riding school stables and a yard manager’s mobile home. It is unbelievable that a man of his immense wealth would cheat the taxpayer of such a petty amount.

A joint investigation by Open Democracy, Source Material and the Times has revealed further murky financial dealings by Zahawi. Crowd2Fund was set up by Chris Hancock, the brother of Zahawi’s political ally Matt Hancock (who was health secretary responsible for Covid restrictions until he was caught on camera breaking the rules himself by snogging and groping his lover’s buttocks in his office)  and has benefited from political decisions. It was, for instance, one of ten companies selected to take part in a Treasury and Department of International Trade programme aimed at giving fintech businesses the chance to profit from the Australian market.

One of Zahawi’s most significant moves in his brief period as chancellor was to introduce legislation to further deregulate financial services. He claimed the Financial Services and Markets Bill would “unleash growth” by replacing EU laws with “agile” regulation for the UK. That seems like a careful move to protect his own profits. This is not just carelessness.

The Zahawi affair gave Keir Starmer the opportunity to embarrass Sunak by referring to Sunak’s own family’s tax affairs. Sunak’s wife, Akshata Murty,  has £700m worth of shares in Infosys, the Indian tech company founded by her father. These have earned her tens of millions of pounds in dividends in recent years. In April last year, it was revealed that Murty saved millions of pounds while living in No 11 as the Chancellor of the Exchequer’s (the man responsible for gathering taxes) wife by using non-dom status to minimise her tax bill. News has just broken that Infosys is in dispute with HMRC over a corporation tax bill of about £20m.

These are people who are careless about the sufferings of others but who take great care to maximise their profits. Paul Waugh wrote in the i-paper about yet another diversionary Tory campaign against “”benefit scroungers”: “The image of a millionaire Prime Minister scapegoating some of the poorest in society for his own lack of a coherent childcare, skills and welfare policy is not a nice look. It’s neither the “compassionate Conservatism” nor the pragmatic politics that Sunak’s supporters had hoped for.”

Lack of Trust

A survey conducted by pollsters Omnisis, found that 65% of British voters now agree with the statement that Rishi Sunak’s party is “institutionally corrupt”, with just 18% disagreeing. Just 31% say the same of the Labour Party. Omnisis found that 72% also agreed with the statement that senior members of the Conservative party are “more interested in personal gain than serving the public” with just 16% disagreeing. There is also a strong public perception that more psychic energy and public funds are being concentrated on the fate of the Conservative Party that on the well-being of the nation or its people.

Sunak’s basis of support was and is shaky. His political skills are meagre and he has few allies. He appointed some dodgy characters in order to become leader and has clung on to some of them in a doomed attempt to unify the party. One of his dodgy allies is Dominic Raab, who is unlikely to survive the report into allegations of bullying against him. Starmer made strong challenges on this at this week’s PMQs and will continue the attack in coming weeks.