Labour was in meltdown on Friday after Angela Rayner’s resignation triggered an emergency reshuffle.

The beleaguered Deputy Prime Minister finally had to quit after a sleaze inquiry found she had failed to pay up to £40,000 tax owed on a luxury seaside apartment.

Her departure forced Sir Keir Starmer to carry out a major reshuffle of his top team just days after declaring that ‘Phase two’ of his government was under way following a dismal first year in office.

The shake-up sees Yvette Cooper moved from the Home Office after failing to tackle the small-boats crisis. She is replaced with tough-talking former justice secretary Shabana Mahmood.

But, with the PM’s own poll ratings at a record low, he appeared to be too weak to sack any senior figures outright for fear of creating dangerous enemies on Labour’s backbenches.

Ms Cooper was moved to the Foreign Office, while the previous occupant David Lammy was offered the consolation of Ms Rayner’s Deputy Prime Minister title to soften the blow of demotion to the Ministry of Justice.

Kemi Badenoch said Labour appeared to be descending into ‘civil war’. The Conservative leader added: ‘Phase two of Starmer’s Government didn’t even last three days.

‘He was too weak to fire the Deputy Prime Minister, even after he was told she broke the ministerial code, and now he’s shuffling deckchairs around on his sinking government.

The Labour Party is now engaged in a civil war for its deputy leadership. All of which will be an enormous distraction from the problems facing Britain, with the cost of borrowing reaching its highest point in decades, and inflation and unemployment rising.’

Former Tory Cabinet minister Sir James Cleverly added: ‘There are so many sideways moves in this reshuffle. Starmer can’t claim it’s about promoting new talent, or about removing dead wood.

‘So it can only be that he put people into the wrong jobs last year.’

Nigel Farage said Labour was now ‘deep in crisis’ and ‘not fit to govern’. He added: ‘Despite all the promises that this would be a new, different kind of politics is as bad – if not worse – than the one that went before.’

Kemi Badenoch said Labour appeared to be descending into ‘civil war’. The Conservative leader added of Sir Keir: ‘He was too weak to fire the Deputy Prime Minister, even after he was told she broke the ministerial code, and now he’s shuffling deckchairs around on his sinking government'

Nigel Farage said Labour was now ‘deep in crisis’ and ‘not fit to govern’. He added: ‘Despite all the promises that this would be a new, different kind of politics is as bad – if not worse – than the one that went before'

It came as:

• Left-wingers pledged to use the contest to replace Ms Rayner as Labour’s deputy leader as a battle for the party’s soul;

• Cabinet enforcer Pat McFadden was handed a new role aimed at driving through benefit reform following a Labour revolt on the issue this year;

• No 10 was forced to reassure the financial markets that Chancellor Rachel Reeves would not be sacked;

• Sir Keir hinted at a future comeback for Ms Rayner despite her breaking the ministerial code;

• Respected investment minister Poppy Gustafsson quit the Government after less than a year in post; 

• Speculation mounted that Greater Manchester mayor Andy Burnham could seek a return to Westminster now that Ms Rayner has been removed;

• Former Commons leader Lucy Powell and Scottish secretary Ian Murray were sacked from the Cabinet.

Labour has been dogged for weeks by questions about Ms Rayner’s tax affairs after she bought an £800,000 apartment in fashionable Hove (pictured) while having the use of a lavish grace-and-favour apartment in Whitehall and maintaining that her family home in Greater Manchester remained her ‘primary residence’

On Friday she insisted her ‘error’ had been ‘inadvertent’. In her resignation letter she said it had been ‘the honour of my life’ to serve as Deputy Prime Minister after starting out as a ‘teenage mum from a council estate in Stockport'

Labour has been dogged for weeks by questions about Ms Rayner’s tax affairs after she bought an £800,000 apartment in fashionable Hove while having the use of a lavish grace-and-favour apartment in Whitehall and maintaining that her family home in Greater Manchester remained her ‘primary residence’.

Ms Rayner initially insisted she had paid her taxes in full – and revealed she had sold her share of the Greater Manchester to a trust set up to provide for the needs of her disabled son.

She finally admitted on Wednesday that she had failed to pay the full tax owed on the new property, but insisted she had been badly advised. Mrs Badenoch said the PM should have sacked her days ago.

An investigation by Sir Laurie Magnus, the PM’s independent adviser on ministerial standards, found on Friday that she had in fact ignored professional advice to seek an expert legal opinion on her tax liability.

He said that failure, coupled with the fact the truth emerged only after persistent investigation by the media, meant she had broken the ministerial code by failing to maintain ‘the highest possible standards of proper conduct.’

Ms Rayner now faces having to pay up to £40,000 in extra tax to settle the punitive additional levels of stamp duty charged on second homes.

Experts said she could also be fined around £12,000 if the taxman deems her behaviour to have been ‘careless’. And her salary will be slashed from £161,409 to £93,904.

On Friday she insisted her ‘error’ had been ‘inadvertent’.

In a warm, handwritten response, the PM hailed his former deputy as the ‘living embodiment of social mobility’ – and predicted she would continue to be ‘a major figure in our party’

Veteran Labour MP Graham Stringer (pictured) on Friday denied rumours he could give up his seat to enable a return to Westminster for Mr Burnham, but sang the praises of the Manchester mayor

In her resignation letter she said it had been ‘the honour of my life’ to serve as Deputy Prime Minister after starting out as a ‘teenage mum from a council estate in Stockport’.

In a warm, handwritten response, the PM hailed his former deputy as the ‘living embodiment of social mobility’ – and predicted she would continue to be ‘a major figure in our party’.

Former Labour frontbencher Thangam Debbonaire said Ms Rayner’s departure was a ‘huge blow’ to Labour, adding: ‘There is no way to sweeten this pill.’

She told Times Radio that as recently as last month ‘there was serious talk of Angela Rayner potentially becoming prime minister at some point (if) things continued to be wobbly’.

Veteran Labour MP Graham Stringer on Friday denied rumours he could give up his seat to enable a return to Westminster for Mr Burnham. But he sang the praises of the Manchester mayor, saying: ‘Like Angela but in a different way, he reaches the electorate that other people don’t.’

Despite Mr Lammy’s installation as Deputy Prime Minister, Sir Keir faces a divisive contest to choose the Labour Party’s new deputy leader.

Left-wing MPs signalled they will use the contest to try to drag the party further to the Left on issues such as wealth taxes and immigration.

Former frontbencher Richard Burgon warned Sir Keir that Labour needed a ‘proper election for deputy leader, fully in line with the party’s rulebook – and not a leadership stitch-up’.

The contest now looks set to overshadow Labour’s annual conference at the end of this month.