LABOUR stepped up its demand that George Osborne apologise over a campaign of "smears" last night after a senior Bank of England official cleared Ed Balls of wrongdoing in the rate-rigging scandal.

Paul Tucker told MPs he had not tried to encourage Barclays to fix the rate at which it borrowed money from other banks.

The Deputy Governor categorically denied any Labour ministers had leant on him to get the rate down.

Mr Tucker also called on the Government to widen its inquiry into the scandal to look at any rate which banks had to self-certify.

He warned a "cesspit" had been uncovered which showed that trusting banks to truthfully report the rates at which they could borrow money "did not work".

The Chancellor had accused Gordon Brown's inner circle of putting pressure on Barclays, which was fined £290 million for its part in the scandal.

Mr Tucker did not deny that he had told Barclays boss Bob Diamond that "senior Whitehall figures" were concerned about the bank's rates in 2008.

However, he said that they were not ministers but officials, including then Downing Street chief of staff Sir Jeremy Heywood.

Shadow Chancellor Mr Balls, singled out by Mr Osborne, said: "It is now absolutely clear that the Chancellor's allegations last week were totally false and completely without foundation.

"George Osborne should now publicly withdraw these false allegations and apologise."

Earlier, Labour leader Ed Miliband called for more bankers to be prosecuted as he set out his plan to clean up the industry, which includes the possibility of corrupt ones being struck off.".