Keir Starmer's Government was frozen in the headlights last night as the plots to topple him finally burst into the open.

On another dramatic day at Westminster, Andy Burnham announced plans for a return to Parliament, where the self-styled 'King of the North' hopes to stage a coup against the Prime Minister within months.

The move came just hours after Wes Streeting delivered a brutal assessment of the PM's character as he quit the Cabinet to prepare his own leadership bid. And Angela Rayner signalled she is ready to contest any fight after agreeing to hand over £40,000 in unpaid stamp duty to settle a dispute with the taxman.

She claimed she had been 'cleared' of wrongdoing by HM Revenue and Customs, although experts were questioning why she had not been fined.

Kemi Badenoch warned that the Labour infighting would paralyse the Government for months at the very moment Sir Keir has pledged to accelerate reforms following Labour's disastrous performance at the local elections.

The Tory leader said: 'The Labour Party has now descended into civil war. And while they're sharpening their knives and plotting in the bars of Westminster, nobody is running the country.'

Last night the pound fell to its lowest level in a month, dropping to below $1.34 at one point, amid mounting expectation that the Government will lurch even further to the Left under a new prime minister.

A Whitehall source said civil servants would 'down tools' until the uncertainty over the direction of the Government is settled.

'Any big new policy is going to be impossible to push through,' the source said. 'It's just human nature that officials will be asking whether anything they do now is going to be reversed by an incoming leader. There is a real danger that the PM becomes a lame duck.'

Allies of the PM were jubilant that Mr Streeting stopped short of triggering an immediate push to remove him – and gloated that he had been unable to get the support of 81 MPs needed to launch a formal challenge.

'Wes has f***** it,' said one. 'It's over for him.' But allies of Mr Streeting insisted he did have the support needed but had chosen to wait after MPs and unions made clear they wanted Mr Burnham to be given a chance to return.

In his two-page resignation letter to the PM he said he had 'lost confidence in your leadership' and so it would be 'dishonourable and unprincipled' for him to remain in his post.

He blasted everything from Sir Keir's 'island of strangers' speech and cuts to the winter fuel payment, which he said left the country unsure 'what we really stand for'.

'Where we need vision, we have a vacuum,' Mr Streeting wrote. 'Where we need direction, we have drift.' 

He also brutally highlighted Sir Keir's habit of forcing others to quit over his mistakes, writing: 'Leaders take responsibility, but too often that has meant other people falling on their swords.'

Later Downing Street published Sir Keir's formal reply to his letter, in which he said he was 'truly sorry' Mr Streeting would no longer be working on NHS reforms but also issued a veiled warning against a leadership battle.

'We must deliver on all of the promises we made to the country, including our promise to turn the page on the chaos that was roundly rejected by the British people at the last general election,' the PM wrote.

And one of his loyal Cabinet ministers went further in attacking Mr Streeting. Communities Secretary Steve Reed told an event: 'It turns the public off when we turn towards ourselves, as my party has been doing. As it turns out, Wes isn't launching a leadership bid as he doesn't have the numbers.

'He's resigned from Cabinet and I'm sorry he's done that. Wes did a fantastic job.'

Four hours later, Greater Manchester Mayor Mr Burnham revealed his long-awaited plan to become an MP again, allowing him to stand in a future contest, after a scandal-hit former minister said he would give up his Red Wall seat for him.

Mr Burnham cannot stand for the leadership unless he is a serving MP and there has been rising panic among his supporters that Mr Streeting could trigger a contest before he can return. 

But now Josh Simons – a former ally of Sir Keir who was forced to quit as a minister in February for commissioning a snooping investigation into journalists – announced that he was standing down in Makerfield, Greater Manchester, triggering a by-election.

However, although Sir Keir is not expected to once more block Mr Burnham from standing in the by-election, there is still no guarantee he would win the contest in an area where Reform is surging.

Last night there was widespread speculation that Mr Streeting and Mr Burnham had agreed an informal deal after sources close to the former health secretary confirmed he is content to wait. In his resignation letter, Mr Streeting called for the PM to allow the 'best possible field of candidates' to challenge him.

It was less than half an hour after Mr Simons declared his intention to 'stand aside' that Mr Burnham confirmed he would be asking Labour's National Executive Committee to let him run.

Mr Burnham said he wanted to return to Westminster in order 'to bring the change we have brought to Greater Manchester to the whole of the UK'.

However, he did not call for Sir Keir to quit and instead said: 'We owe it to people to come back together as a Labour movement, giving the Prime Minister and the Government the space and stability they need as the by-election takes place.'

Last night, Sir Keir appointed James Murray, the former chief secretary to the Treasury, as the new Health Secretary.