Former Barclays boss Bob Diamond is set to make an explosive appearance before MPs after dragging senior Bank of England and Labour politicians into the rate-rigging scandal.
On Tuesday a record of a phone call was released sparking questions about whether the Bank's deputy governor Paul Tucker encouraged improper behaviour.
Tucker also allegedly told Diamond "senior Whitehall figures" had suggested to him that Barclays should not be reporting such high interbank lending rates.
Tories highlighted the reference to pressure from Whitehall, suggesting that Labour ex-ministers had to explain their involvement.
Backbencher Matt Hancock said: "It is now shockingly clear that senior figures in the Labour government were involved in the question of what happened to Libor rates.
"Labour figures have serious questions to answer."
Alistair Darling, who was chancellor from 2007 to 2010, said yesterday he did not believe anyone at the Treasury would have urged such improper intervention by the Bank.
However, he appeared to stop short of expressing confidence that no-one in government would have done so.
"Firstly, I think it is important that this committee which is examining Bob Diamond tomorrow also gets Paul Tucker in front of it at the earliest possible opportunity. Because this is Bob Diamond's account," he told Channel 4 News.
Shadow chancellor Ed Balls, a close ally of Gordon Brown who was a Treasury minister in 2006/7, insisted he knew nothing about the issue.
"I have absolutely no idea, that's why I want, as Ed Miliband does, a full open judicial inquiry at arms-length forensically to ask these questions to see whether anybody knew what was going on," he told BBC News.
"Without that I don't think we can have confidence or the public can't have confidence that we are moving forward in sorting out this culture."
Another former Labour City minister, Lord Myners, told BBC Radio 4's Today programme this morning that he could say "quite categorically" that he did not speak to Paul Tucker or anybody at the Bank of England about the Libor rate setting process.
"I can say quite categorically – and I’m not falling into the class of people that have no recollection," he said.
The "no recollection" line could be interpreted as a reference to former Labour business minister Baroness Vadera, who was a close ally of Gordon Brown during the financial crisis in 2008.
A spokesman for Lady Vadera has said: "She has no recollection of speaking to Paul Tucker or anyone else at the Bank of England about the price-setting of Libor."
The partisan spat between Labour and the Tories threatens to derail David Cameron's proposal to hold a parliamentary inquiry into what went wrong at Barclays.
MPs will be given a chance tomorrow to vote on whether the investigation should be conducted by MPs and peers, as outlined by the prime minister, or be conducted independent of Westminster by a judge, as called for by Ed Miliband.
In a blow to Cameron's plan, Labour MP John Mann said that the chair of the Treasury committee, Andrew Tyrie, will refuse to lead a parliamentary inquiry if it does not enjoy cross-party support.
Labour has been angered by the apparent glee with which George Osborne has spoken about the prospect of Ed Balls being "in the dock" over whether the City was not regulated properly during Labour's time in power.
The dramatic disclosure came hours after Diamond announced his resignation as chief executive with immediate effect, ending a stellar 16-year career with the bank. The details of his exit package are still being thrashed out - with reports that he will be asked to give up nearly £20 million in unvested shares.
Bob Diamond is set to make an explosive appearance before MPs
The American banker is now expected to "speak more freely" when he gives evidence to the Treasury Select Committee. His daughter Nell has seemingly vented her anger on Twitter, posting a lewd jibe at Chancellor George Osborne and Labour leader Ed Miliband, who welcomed her father's departure.
Much attention at the Commons hearing will focus on a key conversation between the bank chief and Mr Tucker about Libor rates at the height of the credit crunch in 2008.
Barclays released the text of a note sent by Mr Diamond on October 30, 2008 to his right-hand man Jerry del Missier and then chief executive John Varley, recounting the exchange. Mr del Missier quit with immediate effect at the same time as Mr Diamond.
Diamond said Tucker had flagged concerns from senior figures in Whitehall over why Barclays was always towards the top end of Libor pricing. He is alleged to have added that the bank's Libor rate did not "always" need to appear as high as it had recentl
Diamond wrote: "His (Tucker's) response was 'you have to pay what you have to pay'."
Diamond said he asked Tucker to explain to his Whitehall contacts that other banks were providing Libor quotes that did not represent real transactions.
According to Barclays, Diamond "did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier".
"However, Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep Libors so high and he therefore passed down a direction to that effect to the submitters," a statement said.
Barclays said there was no allegation by the authorities that this instruction was intended to manipulate the ultimate Libor rate. The FSA investigated Jerry del Missier personally in relation to these events and closed the investigation without taking any enforcement action, the statement added.
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