A Popular British Politician Falls From Grace Over a Tax Scandal

LONDON — Just two months ago, Rishi Sunak, a popular, fast-rising British politician who serves as chancellor of the Exchequer, looked like a good bet to replace the country’s scandal-scarred prime minister, Boris Johnson.

Now, Mr. Sunak’s future is suddenly clouded by a swirl of revelations about his wealthy wife’s tax status, as well as by the fact that he held a green card, allowing him to live and work in the United States, for 19 months after he became chancellor, the top finance post and second most powerful job in Britain’s government.

Even for a country accustomed to political turmoil, Mr. Sunak’s fall has been vertiginous.

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

“It’s difficult to imagine him making a successful bid for the leadership anytime soon, or possibly ever,” said Tim Bale, a professor of politics at Queen Mary, University of London. “It perhaps also speaks to the invulnerability and entitlement that affects someone who is so wealthy.”

Mr. Sunak’s wife, Akshata Murthy, the daughter of one of India’s richest businessmen, claims non-domiciled status in Britain, which saved her millions of pounds a year in taxes on dividends from shares in her father’s technology company, Infosys. On Friday, Ms. Murthy tried to defuse the crisis for her husband by announcing she would begin paying taxes in Britain on her overseas income.

The original arrangement, though common for foreigners living in Britain temporarily, has cast a harsh spotlight on the couple’s extreme privilege. At a time when Mr. Sunak is raising taxes to cover a pandemic-related shortfall in the public finances, his gilded lifestyle has become a political liability, making him appear jarringly out of touch to ordinary Britons who are facing a brutal squeeze in living standards.

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

A normally poised politician, Mr. Sunak, 41, has been thrown off balance by the scrutiny. At first, he accused critics of unfairly “smearing” his wife. Given that the chancellor is responsible for setting Britain’s tax policy, Ms. Rutter said questions about Ms. Murthy’s tax status were both relevant and legitimate.

Next, Mr. Sunak argued in an interview with The Sun newspaper that it “wouldn’t 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. “Like I love mine, I would never dream of giving up my British citizenship.”

There were two problems with that: Mr. Sunak’s green card effectively meant he was declaring 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.)

Moreover, hundreds of thousands of Indian citizens live in Britain without non-domiciled status. Ms. Murthy paid 30,000 pounds, or about $39,000, for the classification; tax analysts estimate she could have saved 20 million pounds, or about $26 million, by paying taxes on her dividends in a lower-tax jurisdiction like India. (She has not confirmed where she pays those taxes.)

“To claim she has to be non-domiciled to return home is farcical,” said Richard Murphy, an accountant who campaigns for tax justice. He predicted it would alienate voters. “Amongst the many things that are cutting through in political terms against the Tories at the moment,” he said, “this one is really going to hurt.”

Opposition leaders have called on the government to investigate whether Mr. Sunak violated the ministerial code of conduct. While Ms. Murthy has pledged to pay British taxes on her overseas income, she will retain non-domiciled status, which could allow her to avoid hefty inheritance taxes.

Mr. Johnson insisted on Friday that Mr. Sunak was doing an “outstanding job.” But relations between them have chilled since the furor over parties threatened the prime minister’s job — hence the speculation that Downing Street was circulating damaging details about him. Mr. Sunak distanced himself from Mr. Johnson during the earlier scandal, and there was feverish speculation he would move to unseat the prime minister as leader of the Conservative Party.

But Mr. Sunak held his fire, and events have conspired to resuscitate Mr. Johnson’s fortunes while deflating his rival’s. Russia’s invasion of Ukraine has eclipsed the prime minister’s scandal, allowing Mr. Johnson to trumpet his relationship with President Volodymyr Zelensky — whom he visited in Kyiv on Saturday — and to take a hard line against President Vladimir V. Putin. Mr. Sunak was left to answer questions about why Infosys had not closed its office in Moscow. (It has since done so.)

Beyond that, Mr. Sunak has become identified with economic and tax policies that are imposing heavy burdens on Britons. It is a stark reversal from Mr. Sunak’s earlier image as the beneficent paymaster, doling out hundreds of billions of pounds of subsidies to cushion people from the ravages of the pandemic.

“The problem for Rishi Sunak is that these problems are coming out just as he is also being criticized for being Scrooge-like,” Ms. Rutter said. “What does this say about the chancellor’s judgment?”

The eldest son of Indian immigrants who attended the elite Westminster School on a scholarship, Mr. Sunak is in many ways a model for multiethnic Britain. After graduating from Oxford, he earned an M.B.A. at Stanford, where he met Ms. Murthy. He worked for Goldman Sachs and hedge funds before running for a safe Conservative seat in Yorkshire. His father-in-law, Narayana Murthy, handed out leaflets for him. When Mr. Sunak won, the local papers called him the “Maharajah of the Yorkshire Dales.”

Now, they are more apt to lampoon Mr. Sunak’s regal tastes. In 2020, he drew japes after being photographed with a $235 “smart mug” that keeps tea or coffee at a precise drinking temperature. Last month, a photo opportunity went off the rails when Mr. Sunak seemed unsure how to fill up a car at a gas station.

In the cut-and-thrust of British politics, that makes him vulnerable. The same papers that once speculated about Mr. Sunak as a prime minister in waiting now question whether Mr. Johnson will demote him in a cabinet shuffle.

“Rishi Sunak does risk becoming one of those souffle politicians,” Professor Bale said, “looking like they are rising nicely but then collapsing disappointingly.”