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, Sir Keir 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 said Reeves should be sacked if she is found to have broken the law.

A Downing Street spokesman declined to say if Reeves had broken the ministerial code or whether she would resign if she received a fine from the local council who enforces the rules.

“The ministerial code makes clear that in certain circumstances and in consultation with the independent adviser, an apology is sufficient resolution,” he said.

Asked several times by journalists if ethics adviser Sir Laurie Magnus was able to see any evidence other than the chancellor’s account of what happened, the spokesman refused to answer.

The chancellor became aware of the problem on Wednesday when the Daily Mail, who first reported the story, approached her for a comment.

The exchange of letters between the PM and Reeves revealed they met later that evening to discuss the matter.

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.

Reeves wrote: “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 response, the prime minister said the public expected “the highest standards” and confirmed he had consulted with Sir Laurie Magnus, the ethics adviser whose findings have previously felled two ministers.

Sir Laurie had judged that further investigation was not necessary given Reeves’ swift action and apology, Sir Keir said.

Sources close to the Chancellor said that her letting agent had told her it would advise her if a selective licence was needed and did not do so.

After Labour won the general election in July 2024, Reeves’ family home in London was put up for rent for £3,200 a month.

It is in an area where Southwark Council requires private landlords to hold a selective licence, which can be obtained at a cost of £945.

Selective licences ensure landlords meet set standards, normally aimed at raising housing quality, fighting crime and boosting housing demand.

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 BBC has contacted Southwark Council and the letting agent for a response.

The chancellor – and MP for Leeds West and Pudsey – has been supportive of councils using selective licences. Less than two weeks ago, she welcomed Leeds City Council’s decision to expand their use of the scheme.

In a post on social media she said: “While many private landlords operate in the right way, we know that lots of private tenants in Armley face problems with poorly maintained housing.

“This scheme means private landlords in the area will be required by law to obtain a licence for any residential property they are seeking to let and must meet certain standards to ensure the property is safe and in a decent state of repair.”

Acorn, a union for tenants who rent privately, said: “It is laughable for those in the highest positions of power in this country to support these initiatives then fail to follow them themselves, accidentally or not.”

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.

Conservative leader Kemi Badenoch said: “She is the chancellor. She needs to be on top of her paperwork. She was aware of this legislation. I think there should be an investigation.

“But the bottom line is that Keir Starmer said again and again, ‘the law breakers shouldn’t be lawmakers’, so if she’s broken the law, then he should apply his own rules to her.”

Shadow Chancellor Sir Mel Stride told BBC Breakfast on Thursday that he believed the prime minister “needs to show some backbone”.

“We need a proper investigation into exactly what has happened,” he said. “This seems to be an attempt to put the whole thing to bed with a quick exchange of letters last night.

“This is a prime minister who, when he came into office, on the steps of Downing Street talked about restoring the dignity and integrity of government.

“We have seen a whole litany of these instances – Angela Rayner, Louise Haigh and others – who have fallen well short of that standard. If he is to stand by his word I think he should be concluding her position is untenable.”

Asked if it was reasonable to call for the Chancellor’s resignation, Police Minister Sarah Jones replied “no”.

She told the BBC that Reeves had “made a mistake, she didn’t know she had to apply, as soon as she knew she applied, she rectified the mistake – she told the prime minister, she told the authorities in Parliament, she did everything as she should – she rectified the mistake and she’s apologised for it”.

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.”