Sir Keir Starmer has dismissed calls for an investigation into Chancellor Rachel Reeves after she apologised for breaking housing rules when renting out her family home.
In a letter to the prime minister, Reeves admitted she did not obtain a "selective" rental licence required to rent out her London home and "sincerely" apologised for her "inadvertent error".
In reply, the prime minister said he was happy the "matter can be drawn to a close" after consulting his independent ethics adviser, who has decided not to launch an investigation.
The Conservatives have called for an investigation and for Reeves to be sacked.
The exchange of letters between the PM and Reeves revealed they had met on Wednesday evening to discuss the matter, which was first reported in the Daily Mail.
Reeves told Sir Keir that "regrettably" she was not aware a licence was needed to rent out her Southwark home after moving into Downing Street last year.
Ms Reeves told Sir Keir: "This was an inadvertent mistake. As soon as it was brought to my attention, we took immediate action and have applied for the licence.
"I sincerely apologise for this error and I would be happy to answer any questions you may have."
In his letter in response, the prime minister said the public expected "the highest standards" and confirmed he had consulted with Sir Laurie, the ethics adviser whose findings have felled two ministers.
Sir Laurie had judged "further investigation is not necessary" given Reeves' swift action and apology, Sir Keir said.
Reeves' family home in London was put up for rent after Labour won the election in July 2024 for £3,200 a month.
It is in an area where Southwark Council requires private landlords to hold a selective licence.
Selective licences ensure landlords meet set standards, normally aimed at raising housing quality, fighting crime and boosting housing demand.
Reeves' allies admit she should have obtained a licence, but claim she was specifically told by the estate agents at the time that they would advise if she needed one.
The 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."
Reeves or her letting agent now face an unlimited fine if Southwark Council takes the matter to court.
The revelations come at a politically awkward time for Reeves, who is preparing for a Budget next month amidst speculation the government could break a manifesto commitment not to raise income tax.
Writing on social media earlier, Badenoch said Sir Keir "once said 'lawmakers can't be lawbreakers'. If, as it appears, the chancellor has broken the law, then he will have to show he has the backbone to act."
A Conservative spokesperson added: "Rachel Reeves has broken the law and broken the ministerial code, but Keir Starmer is too weak to sack her.
"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."
The Liberal Democrats' deputy leader Daisy Cooper said: "The chancellor is meant to be delivering growth but the only thing she appears to be growing is the government's list of scandals.
"Just weeks before the Budget, this risks seriously undermining confidence in this government and its ability to focus on the urgent tasks at hand."
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