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Rachel Reeves faces growing calls to resign for "breaking the law" after renting out her family home without an essential licence. The Chancellor could also be forced to pay back £38,000 or even face criminal proceedings, after she admitted breaching housing rules that she herself championed.

Prime Minister Sir Keir Starmer was accused of "laughing in the face of the British public" as he attempted to downplay the breach, and refused to investigate on the grounds that Ms Reeves has apologised. Conservative leaderKemi Bandeoch said: "If the Chancellor can't even get on top of her own paperwork, how's she going to get on top of the country's paperwork?" A Conservative spokesman said: "Rachel Reeves has broken the law and broken the ministerial code, but Keir Starmer is too weak to sack her."

The Tory spokesman said: "While the Chancellor is planning tax hikes for millions of families across the country at the Budget, it's one rule for the Chancellor and another for everyone else. Keir Starmer pledged to restore integrity to politics, but now he's laughing in the face of the British public.

"He should grow a backbone and sack the Chancellor now. This is not over."

In a letter to the Prime Minister, Ms Reeves blamed "an inadvertent mistake" for her failure to obtain a £945 licence before renting out her property in Dulwich, south east London, for £3,200 a month. The local authority, Southwark Council, has used powers available to it under the 2004 Housing Act to make a licence mandatory for landlords.

She said: "Regrettably, we were not aware that a licence was necessary, and so we did not obtain the licence before letting the property out."

The Prime Minister attempted to dismiss the error in a letter to Ms Reeves, claiming that Sir Laurie Magnus, the Independent Adviser on Ministerial Standards, had concluded "in light of your prompt action to rectify the position, including your apology - further investigation is not necessary."

Sir Keir said: "The Ministerial Code makes clear that in certain circumstances, an apology is a sufficient resolution."

However this appeared to be an admission that the code had in fact been broken.

Pressed by journalists on whether the Prime Minister could sack his Chancellor, the spokesman said: "I won't get into hypotheticals."

But one Labour MP said: "She has to go. She's either accident-prone or incompetent.

"The Prime Minister is protecting her now because the bond markets would take fright. She's actually lucky this has come out just before the Budget, because it's saved her. But I can't see her clinging on for long."

The Chancellor last year called for the licensing scheme to be introduced in her own constituency, saying it was needed to protect tenants. Highlighting a campaign in the Armley district of Leeds, she said on social media: "Renters will be better off under Labour. Locally your Labour team in Armley has been campaigning for a selective licensing scheme to crack down on rogue landlords but we need national solutions to support renters too."

Southwark council's website states: "You can be prosecuted or fined if you're a landlord or managing agent for a property that needs a licence and do not get one."

And the authority's leader of the opposition has demanded the Labour-run council consider forcing the Chancellor to repay tens of thousands of pounds to her tenants - or to launch criminal proceedings.

Tenants renting an unlicensed property are able to apply for a 12-month repayment order, which at £3,200 per month could mean up to £38,400.

Coun Victor Chamberlain, of the Liberal Democrats, wrote to the council leader to say the authority should "pursue any further enforcement action that may be warranted, including prosecution." He also said Ms Reeves should be "added to the rogue landlords register if found at fault".

Shadow Foreign Secretary Priti Patel also called for Ms Reeves to be prosecuted. She said: "Rachel Reeves has made thousands from renting without following the licensing laws. Southwark Council must now take action on Rachel Reeves and prosecute her."

Campaigners supporting tenants demanded Ms Reeves quit as Chancellor. Jae Vail, a spokesman for the London Renters Union said: "Rachel Reeves must resign."

Mrs Badenoch said the Prime Minister must now carry out an audit of his entire Cabinet to ensure there are no more skeletons in the closet, and claimed "personal issues" were distracting ministers from running the country.

The Conservative leader highlighted other Labour Cabinet resignations including Angela Rayner, who quit as Deputy Prime minister after failing to pay enough tax on her £800,000 flat in Hove, and former Transport Secretary Louise Haigh, who resigned after it emerged she pleaded guilty to a fraud offence a decade ago.

She said: "They are very distracted with all of their personal issues, their constant blunders.

"We need a cabinet of people who are focused on what is going on with our economy and our country."

But Labour policing minister Sarah Jones defended Ms Reeves, saying: "The Chancellor wasn't aware that she had to apply for this selective licence. As soon as she became aware, she rectified the situation."