Tulip Siddiq has resigned as the government’s anti-corruption minister.
In a fresh blow for Keir Starmer, she said she did not want to be a “distraction from the work of the government” following the controversy over her links to her aunt, Sheikh Hasina, who is the former prime minister of Bangladesh.
Siddiq was alleged to have been involved in brokering a deal in 2013 with Russia for a nuclear power plant in the the south Asian country.
Sheikh Hasina is facing a wider investigation by an anti-corruption commission in Bangladesh after being deposed.
Siddiq, the Labour MP for Hampstead and Highgate, has also come under intense scrutiny over her use of properties in London linked to her aunt’s allies.
The current Bangladeshi leader Muhammad Yunus told the Sunday Times they should be handed back to his government if acquired through “plain robbery”.
Her resignation comes barely a month after transport secretary Louise Haigh also quit.
Siddiq - a close ally of Starmer - resigned following an investigation by Sir Laurie Magnus, the independent adviser on ministerial standards.
In his letter to the PM, he said: “Given the nature of Ms Siddiq’s ministerial responsibilities, which include the promotion of the UK financial services sector and the inherent probity of its regulatory framework as a core component of the UK economy and its growth, it is regrettable that she was not more alert to the potential reputational risks - both to her and the Government - arising from her close family’s association with Bangladesh.
“I would not advise that this shortcoming should be taken as a breach of the ministerial code, but you will want to consider her ongoing responsibilities in the light of this.”
In her resignation letter, Siddiq said: “It is clear that continuing in my role as economic secretary to the Treasury is likely to be a distraction from the work of the government.
“My loyalty is and always will be to this Labour government and the programme of national renewal and transformation it has embarked upon. I have therefore decided to resign from my ministerial position.”
In his reply, Starmer - whose constituency neighbours Siddiq’s - said the “door remains open” for her to return to government in the future.
The prime minister said: “I want to thank you for self-referring to the independent adviser and for your full co-operation with the establishment of facts.
“I appreciate that to end ongoing distraction from delivering our agenda to change Britain, you have made a difficult decision and want to be clear that the door remains open for you going forward.”
His words are in stark contrast to the terse letter he wrote to Louise Haigh when she resigned.
Siddiq has been replaced as City minister by Emma Reynolds, while Torsten Bell, a former adviser to Ed Miliband who only became an MP last July, has been made a junior Treasury minister.
Tory leader Kemi Badenoch said: “It was clear at the weekend that the anti-corruption minister’s position was completely untenable. Yet Keir Starmer dithered and delayed to protect his close friend.
“Even now, as Bangladesh files a criminal case against Tulip Siddiq, he expresses ‘sadness’ at her inevitable resignation. Weak leadership from a weak prime minister.”
Liberal Democrat Cabinet Office spokesperson Sarah Olney said: “It’s right Tulip Siddiq resigned, you can’t have an anti-corruption minister mired in a corruption scandal.
“After years of Conservative sleaze and scandal, people rightly expected better from this government.”