A Conservative MP has urged Chancellor George Osborne to apologise to rival Ed Balls for saying he had "questions to answer" over the Barclays rate-fixing scandal.
Andrea Leadsom made the plea after the deputy governor of the Bank of England "absolutely" rejected suggestions he had leant on the bank to manipulate the Libor or that Labour ministers had encouraged him to do so.
Leadsom, who sits on the Treasury Select Committee, said fellow Tory Osborne had made a mistake last week by claiming that figures in Gordon Brown's inner circle were involved in pressurising Barclays into altering the key lending rate.
The MP told BBC Radio 4's World Tonight programme: "Obviously he made a mistake and I think he should apologise.
"I think it was a very valid discussion at the time about who knew what and it has now been completely squashed by Paul Tucker."
Tucker, who is a frontrunner for the role of Governor when Sir Mervyn King steps down, yesterday told MPs a record of a contentious phone call he had with former Barclays boss Bob Diamond about Libor gave the "wrong impression".
Appearing in front of the Treasury Select Committee, the senior banker said he had intended to ensure Barclays was not "inadvertently sending distress signals" about its financial health at a time when the market viewed the bank as the next in line for a government bailout.
Describing the Libor scandal at Barclays as an "absolutely massive shock," Tucker confirmed one of the Whitehall figures was the-then Downing Street chief of staff Sir Jeremy Heywood but denied he had attempted to influence Barclays into rigging rates.
The deputy governor rejected claims that the then Downing Street chief of staff Sir Jeremy Heywood, then City minister Ed Balls and former Treasury minister Baroness Vadera had asked him to pressure Barclays to lower its Libor submissions.
Labour seized on his comments as proof that Osborne was wrong to make the claims, which first surfaced in the media before being repeated in the House of Commons, and demanded a public apology.
Labour Treasury spokesman Chris Leslie said: "This is now the final nail in the coffin of the Tory smear campaign the Chancellor led last week. It is now crystal clear that the allegations he threw around were completely wrong and without foundation."
On Tuesday afternoon the former Tory chancellor Norman Lamont told the BBC's Daily Politics programme that Osborne may have "overplayed his hand".
"If there is an allegation Ed Balls intervened it doesn't stand up, that is clear," he said. "It is clear ministers did not intervene."
But David Cameron does not believe Osborne should apologise, according to a Downing Street spokesperson.
Mr Cameron's official spokesman was asked at a regular media briefing this morning whether the Prime Minister agreed it was time for the Chancellor to say sorry.
The spokesman said: "The Treasury has been making the position clear that he won't. He (Mr Cameron) agrees with the Treasury."
On Tuesday morning, the hashtag #sozborne appeared on Twitter courtesy of former Deputy Prime Minister John Prescott.
Barclays has been the focal point for a row over banking culture after the bank was fined £290m by UK and US regulators for manipulating the Libor, which affects mortgages and loans.
Tucker found himself in the spotlight after Diamond published his account of a phone call, in which it has been suggested Tucker was encouraging the bank to submit lower Libor submissions in light of concerns from senior Whitehall figures.
Tucker said that concerns about Barclays' submissions existed at the time he spoke to Diamond in October 2008 not only in Whitehall but also in the markets.
After the launch of a package of co-ordinated international efforts to shore up the markets earlier in the month, both officials and markets were monitoring Libor and found that - compared to many other participants, who had lowered their submissions - "Barclays continued to pay higher rates in the market, as reflected in their Libor submissions".
The deputy governor said there was concern that Barclays was "next in line" to collapse and require taxpayer assistance after Royal Bank of Scotland and Lloyds Banking Group.
Tucker said he contacted Diamond to discuss its high Libor submissions because the economic climate was "fragile" and banks needed to be careful.
During his evidence he also described the setting of the Libor rate as "a cesspit" and called for an end to the practice of "self-certification" under which banks submit figures on the basis of their own judgments rather than actual transactions.
#Sozborne hits Twitter. Here are some of the best tweets:
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