Mr Zahawi has come under increased pressure after a multi-million pound investigation was launched HM Revenue & Customs Settlement he made as chancellor to end a dispute.
Labor leader Sir Keir Starmer is likely to take up the fallout and whether Mr Sunak asked Mr Zahawi about his tax affairs before appointing him party leader, a cabinet support role, in the House of Commons.
The Prime Minister’s spokesman said Mr Sunak was unaware that Mr Zahawi had paid a fine to HMRC when he told the House of Commons last week that its leader had “addressed the matter fully”.
The chairman of the Committee on Standards in Public Life, Lord Evans, criticized Mr Zahawi’s legal threats as he tried to prevent stories about his tax affairs from emerging.
Senior Conservative MP Caroline Nokes has urged Mr Zahawi to “step aside until this matter is resolved” but Mr Sunak has so far stood by him.
The Prime Minister ordered his ethics adviser to investigate whether Mr Zahawi had broken ministerial rules over the estimated £4.8million bill he settled with HMRC as Chancellor.
Mr Sunak admitted that there were “questions that need to be answered” when the inquiry was launched, but argued that it was “long-standing practice” for ministers to remain in their roles during the inquiry.
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Lord Evans suggested “trying to shut down legitimate public debate” would not conform to the Nolan Principles on Public Life, which the Ministerial Code requires adherence to.
“Accountability and openness are things that the Government say they want to characterize their own behaviour, so I think that speaks for itself,” he told BBC Radio 4’s PM programme.
“The sort of attempts, seemingly legal attempts, to quash this story do not, in my opinion, meet the standards that the public would rightly expect.”
The PM’s press secretary said Mr Sunak “takes Nadhim Zahawi at his word”.
However, Mr Sunak bowed to pressure to order the inquiry by Ministerial Interest Advisor Sir Laurie Magnus after the Guardian revealed Mr Zahawi had paid a fine as part of the dispute.
Downing Street then suggested Mr Sunak was unaware last week that Mr Zahawi had paid the alleged 30% fine to HMRC.
And the prime minister said the advice he received ahead of Mr Zahawi’s appointment as party leader in October was that there was “no reason” not to do so.
Mr Zahawi, MP for Stratford-upon-Avon, has insisted his “mistake” in relation to shares in polling agency YouGov, which he co-founded, was “negligent and not intentional”..
He said he was “confident” that he had “acted correctly throughout”.
Labor has argued that Mr Sunak should sack the leader before the inquiry is complete, describing it as a “Pathetic attempt to pass the buck”.
Mr Zahawi was appointed Chancellor by Boris Johnson, whose time in No 10 continues to pose challenges for Mr Sunak.
New allegations about Nepotism in the Tory party was leveled out after BBC leader Richard Sharp emerged helped secure Mr Johnson a loan of up to £800,000 before the then Prime Minister backed his appointment to the broadcaster.
Since the last PMQs session, Mr Sunak has also received a second police fine, this time for failing to wear a seat belt after breaking coronavirus rules during the Partygate scandal.
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