A popular British politician falls out of favor over a tax scandal

LONDON — Just two months ago, Rishi Sunak, a popular, fast-rising British politician who is serving as chancellor of the exchequer, seemed like a solid choice to replace the country’s scandal-hit prime minister, Boris Johnson.

Now Mr. Sunak’s future is suddenly clouded by a flurry of revelations about his wealthy wife’s tax status and the fact that he held a green card that allowed him to live and work in the United States 19 months after he became Chancellor, the highest financial post and second most important post in British government.

Even for a country used to political unrest, Mr Sunak’s fall was staggering.

Mr Johnson, who himself has fended off calls to resign over parties being held at 10 Downing Street in breach of coronavirus restrictions, has been forced to defend Mr Sunak and dismiss suggestions that his aides had planted negative stories about him .

“It’s hard to imagine him successfully running for leadership anytime soon, or possibly ever,” said Tim Bale, professor of politics at Queen Mary, University of London. “It maybe also speaks to the invulnerability and entitlement that affects someone who is that rich.”

Mr. Sunak’s wife, Akshata Murty, the daughter of one of India’s wealthiest businessmen, claims not to be resident in the UK, which saved her millions of pounds a year in taxes on dividends from shares in her father’s tech company Infosys. On Friday, Ms Murty tried to defuse the crisis for her husband by announcing she would start paying tax in the UK on her overseas income.

The original arrangement, although common for foreigners living temporarily in the UK, has put the spotlight on the couple’s extreme privilege. At a time when Mr Sunak is raising taxes to cover a deficit in public finances caused by the pandemic, his gilded lifestyle has become a political liability, making him staggering to ordinary Britons who face brutal pressures on living standards appear contactless.

“People have liked Rishi, despite the fact that he’s ridiculously, fabulously rich,” said Jill Rutter, a former Treasury official who is now a researcher at UK in a Changing Europe, a think tank. “But being rich and being a tax manipulator is another thing.”

A normally even-tempered politician, Mr Sunak, 41, was thrown off balance by the test. First, he accused critics of having wrongly “slandered” his wife. Given that the Chancellor is responsible for setting UK tax policy, Ms Rutter said questions about Ms Murty’s tax status are both relevant and legitimate.

Next, Mr Sunak argued in an interview with The Sun newspaper that it “would not be reasonable or fair to ask her to sever ties with her country because she happens to be married to me”.

“She loves her country,” he said. “As I love mine, I would never dream of giving up my British citizenship.”

There were two problems: Mr. Sunak’s green card effectively meant that he declared himself a permanent resident of the United States for tax purposes long after he became a Member of Parliament. (He gave up the card before making his first visit to the United States as Chancellor last October.)

In addition, hundreds of thousands of Indian citizens live in the UK without resident status. Ms Murty paid £30,000 or about $39,000 for the assessment; Tax analysts estimate it could have saved £20million, or about $26million, by paying tax on its dividends in a low-tax jurisdiction like India. (She hasn’t confirmed where she pays those taxes.)

“To suggest that she doesn’t have to be a resident to return home is a farce,” said Richard Murphy, an accountant who works for tax justice. He predicted it would alienate voters. “Among the many things that are going on politically against the Tories right now,” he said, “this one is going to really hurt.”

Opposition leaders have called on the government to investigate whether Mr Sunak breached the ministerial code of conduct. While Ms Murty has agreed to pay UK tax on her overseas income, she retains non-domiciled status, which could allow her to avoid high inheritance taxes.

Mr Johnson insisted on Friday that Mr Sunak was doing an “excellent job”. But relations between them have cooled since excitement over parties threatened the Prime Minister’s job – hence speculation Downing Street leaked damaging details about him. Mr Sunak distanced himself from Mr Johnson during the earlier scandal and there was feverish speculation he would unseat the Prime Minister as leader of the Conservative Party.

But Mr. Sunak held back his fire, and events conspired to revive Mr. Johnson’s fortune while that of his rival was drained. Russia’s invasion of Ukraine has eclipsed the prime minister’s scandal, allowing Mr Johnson to trumpet his relationship with President Volodymyr Zelenskyy – whom he was visiting in Kyiv on Saturday – and to take a tough line against President Vladimir V Putin. Mr. Sunak had to answer questions about why Infosys had not closed its Moscow office. (It has since done so.)

In addition, Mr. Sunak has identified with the economic and fiscal policies that are placing heavy burdens on the British. It’s a stark reversal from Mr Sunak’s previous image as a charitable paymaster handing out hundreds of billions of pounds in subsidies to protect people from the ravages of the pandemic.

“The problem for Rishi Sunak is that these issues are coming out while he’s also being criticized for being Scrooge-like,” Ms Rutter said. “What does that say about the Chancellor’s verdict?”

The eldest son of Indian immigrants who attended elite Westminster School on a scholarship, Mr Sunak is in many ways a model for multi-ethnic Britain. After graduating from Oxford, he earned an MBA from Stanford, where he met Ms. Murty. He worked for Goldman Sachs and hedge funds before bidding for a secure Conservative seat in Yorkshire. His father-in-law, Narayana Murthy, distributed leaflets for him. When Mr Sunak won, the local newspapers dubbed him the ‘Maharajah of the Yorkshire Dales’.

Now they are more inclined to scoff at Mr. Sunak’s royal taste. In 2020, he drew jokes after being photographed with a $235 “smart mug” that keeps tea or coffee at a precise drinking temperature. A photo op faltered last month when Mr Sunak appeared unsure how to fill up a car at a petrol station.

This makes him vulnerable in the back and forth of British politics. The same newspapers that once speculated about Mr Sunak as prime minister-on-hold are now questioning whether Mr Johnson will demote him in a cabinet reshuffle.

“Rishi Sunak risks becoming one of those souffle politicians,” Professor Bale said, “it looks like they’re going to rise well, but then disappointingly collapse.”

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