Revealed: officials raised ‘flag’ over Nadhim Zahawi’s tax affairs before he was appointed chancellor | Nadhim Zahawi

A “flag” was raised by officials over the financial affairs of the new chancellor, Nadhim Zahawi, before he was promoted, the Observer can reveal.

Civil servants in the Cabinet Office’s propriety and ethics team are said to have alerted Boris Johnson to a HM Revenue and Customs “flag” over Zahawi before his appointment. The PM appointed him despite the possible concerns over his tax affairs.

“It’s extraordinary that flags were raised ahead of Nadhim’s appointment by the Downing Street proprietary team,” one source said this weekend. “These sorts of concerns would stop someone receiving an MBE or OBE. The idea he could be chancellor or even prime minister is unbelievable”.

The revelation comes after a report last week in the Independent that Zahawi was investigated by the National Crime Agency (NCA). The investigation did not lead to any action and there is no suggestion of wrongdoing.

Zahawi, 55, who is set to launch his leadership bid on Sunday, is under mounting pressure over his financial affairs. He is one of the richest members of the cabinet and has a personal fortune of more than £100m. He now faces calls to explain the financial arrangements of his family trust, an offshore firm, Balshore Investments in Gibraltar, which held shares worth more than £20m in YouGov, one of the country’s leading polling firms, which he co-founded.

The company said in a statement to the Observer this weekend: “When Nadhim Zahawi was a director of YouGov plc, his beneficial interests in the company included shares held by Balshore Investments Ltd, a family trust of Nadhim Zahawi.” A source close to Zahawi said he “does not have, and never has had, an interest in Balshore Investments and he is not a beneficiary.”

The trust held the shares for at least seven years after Zahawi became an MP in May 2010, earning dividends of hundreds of thousands of pounds. He did not disclose the family trust on the parliamentary register of interests when he became an MP, but has said he complied with all relevant rules on financial interests.

Zahawi was chief executive and a director of YouGov until 2010, and Balshore Investments disposed of its YouGov shareholdings about eight years later. It is legally permitted to hold assets offshore, but Zahawi is now facing calls for greater transparency.

Richard Murphy, professor of accounting practice at Sheffield University, said offshore trust structures were typically set up for tax advantages and Zahawi should explain its purpose. He said: “It’s beholden on any politician to be transparent about financial affairs. It should be disclosed who are the beneficiaries of this trust, whether any money has been distributed and what tax has been paid.”

While an MP, Zahawi took a second job with oil and gas company Gulf Keystone Petroleum, which has an oilfield in Kurdistan. He was paid up to £30,000 a month and additional bonus payments, stepping down when he became a minister in 2018.

Zahawi’s rise to fortune and political success is an inspiring narrative for his leadership campaign. He was born in Baghdad to Kurdish parents and arrived in the UK at nine, unable to speak English. He said in a speech last year that the UK and its education system “took in a young Kurdish boy without a word of English and made him a cabinet minister”. He grew up near Crowborough in Sussex, and studied chemical engineering at University College London.

Lord Archer; Zahawi struck up a friendship him him while campaigning for Iraqi exiles. Photograph: Victoria Jones/PA

He struck up a friendship with the novelist Lord Archer while campaigning for Iraqi exiles who wanted to see the overthrow of Saddam Hussein. Archer described the young Zahawi as a “born organiser”, telling the BBC last year: “If you said ‘I need six taxis, three aeroplanes and a double-decker bus, all in 30 minutes’ he went and did it.” Archer invested in a Midlands-based clothing company where Zahawi worked as a sales executive, which made clothes under licence for brands such as the children’s show Teletubbies. The venture reportedly collapsed with the loss of 100 jobs.

In 1994, Zahawi became a Tory councillor for Wandsworth in south London. He was enlisted to help in Archer’s bid to become mayor of London in the elections in May 2000. Archer was forced to pull out of the race after admitting asking a friend to provide a false alibi before a libel trial. In working on the bid, Zahawi and another team member, Stephan Shakespeare, found conventional polling was slow and expensive. They founded YouGov in 2000, which pioneered internet-based research and has become one of the UK’s leading polling firms. It floated on the AIM market of the London Stock Exchange in 2005.

Zahawi and his wife, Lana Saib, 56, have built an extensive property portfolio, with purchases including a London townhouse, high street properties and an industrial estate.

When the Cabinet Office was asked about the “flag” raised over Zahawi, a spokesperson said: “Under the ministerial code, ministers must ensure that no conflict arises, or could reasonably be perceived to arise, between their ministerial position and their private interests, financial or otherwise.

“The chancellor has followed the process set out in the ministerial code and complied with those requirements to the satisfaction of the previous independent advisers.”

A spokesperson for Zahawi said: “All Mr Zahawi’s financial interests have been properly and transparently declared.” A source close to Zahawi said he and his wife had never claimed non-domicile status.”

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