Sir Keir told the Commons: “His failure to sack him when the whole country knows what’s going on shows how hopelessly weak he is.”
“A prime minister overseeing chaos, overwhelmed at every turn … He can’t even deal with tax avoiders in his own cabinet. Is he starting to wonder is this job is just too big for him?” the Labour leader added.
Mr Sunak, who has ordered his ethics adviser to investigate the Zahawi tax saga, suggested that it would have been “politically expedient” to sack his under-fire minister before PMQs.
But the prime minister insisted that the Tory chairman deserved “due process” on the investigation by his ethics’ adviser, accusing Sir Keir of “petty politics”.
Mr Sunak said the HMRC tax investigation – first revealed by The Independent in July – “occurred before I was prime minister”, adding that “the usual appointment process followed” when he gave Mr Zahawi a cabinet job.
A week ago, Mr Sunak told MPs that Mr Zahawi had “already addressed the matter in full” – but No 10 said the PM had not been aware that the Tory chairman had paid a penalty to HMRC as part of the settlement.
“No issues were raised with me, and since I commented on this matter last week, more information has come forward, and that is why I’ve asked the independent adviser to look into the matter.”
More senior Tory figures have joined Caroline Nokes in calling on Mr Zahawi to resign. Lord Hayward said he should step aside, at least until the inquiry concludes – warning that the saga could help “flatline” Tory popularity ahead of the local elections.
Ex-Tory minister David Gauke was “hard to see how this doesn’t ultimately end in resignation”. Dominic Grieve, ex-Tory attorney general, said the PM did not need his adviser’s probe to answer the “obvious question” of whether Mr Zahawi had acted with integrity.
The PM is facing a mounting backlash from his own MPs over the decision to keep the Tory chairman in the cabinet, with one former minister telling The Independent it was “insanity” to leave the matter unresolved.
Making a dig at Mr Sunak’s wife non-dom tax status – renounced after it was revealed by The Independent – Sir Keir said: “We all know the prime minister was reluctant to ask his party chair questions about his family finances and tax avoidance.”
Despite the pressure, Mr Zahawi is said to be determined to remain in cabinet stay on as Tory chairman. “He is not resigning” one party source told The Telegraph this morning.
Tory MP Bim Afolami told TalkTV that Mr Zahawi had told colleagues that “he hasn’t done anything wrong” and his tax arrangement were “typical when people sell a business that … sometimes there’s a discussion [with HMRC] and in the end it’s decided.”
Mr Zahawi has denied a deliberate attempt to avoid paying tax, saying he had “cooperated” with the HMRC during inquiries in related to offshore company Balshore Investments, which had held shares in the polling company he co-founded, YouGov.
Mr Zahawi provided previous few details in the summer. He denied being a beneficiary of Balshore Investments, and disclosed that his father had held the shares.
On Saturday he said his father took founder shares “in exchange for some capital and his invaluable guidance” when he was setting up the polling firm.
Mr Zahawi also said HMRC had agreed that his father was entitled to some founder shares “though they disagreed about the exact allocation”.
The minister has not yet disclosed the size of the HMRC settlement, which reportedly amounted to £4.8m, including interest and a 30 per cent penalty of around £1m. His spokesman has not denied the sums.