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The shadow chancellor has called for Virgin boss Sir Richard Branson to be stripped of his knighthood, as the row between Jeremy Corbyn and the entrepreneur escalated.

The Labour leader's most senior ally John McDonnell hit out at the tycoon, claiming he wanted to "undermine our democracy" after Virgin Trains released footage disputing Mr Corbyn's claims about overcrowding on one of its services.

Mr McDonnell, who is running Mr Corbyn's campaign to be re-elected as Labour leader, demanded an overhaul of the honours system and also restated his call for former BHS boss Sir Philip Green to lose his title.

Writing in the Sunday Mirror, Mr McDonnell said Sir Richard was a "tax exile who thinks he can try and intervene and -undermine our democracy".

The controversy erupted after Virgin Trains released CCTV images that appeared to show the Labour leader walking by vacant, unreserved seats before he was filmed sat on the floor complaining about crowded carriages.

Mr McDonnell said: "The whole purpose of the honours system is undermined when the rich and the powerful can collect their gongs without giving anything back. It's even worse when tax exiles are given honours."

He added: "It should be a simple choice for the mega-rich. Run off to tax exile if you want. But you leave your titles and your honours behind when you go."

A spokesman for the shadow chancellor said: "John believes that it should be for Parliament to ultimately decide who is or who is not stripped of their title, if enough members of the public campaign for it.

"But he would not support tax exiles or businessmen who mistreat their employees retaining their titles."

Labour MP John Woodcock, a prominent critic of the leader, mocked Mr McDonnell's call: "Dare to question Saint Jeremy's version of the truth? John McDonnell will strip you of your knighthood."

The intervention by Mr McDonnell came as Mr Corbyn's rival for the Labour leadership set out his plans to scrap university tuition fees as part of a package aimed at winning over young voters.

Owen Smith called for the current university funding system to be abolished and replaced with a 1 per cent or 2 per cent graduate tax.

He also promised to guarantee a high-level apprenticeship paid at the living wage to every 18-year-old who gets the grades, and pledged to build 50,000 "first homes" a year earmarked for the under-30s, which would be rented to first-time buyers at 80 per cent of the local market rent with the remaining 20 per cent going into a savings pot.

At the end of the tenancy, which would last between five and eight years, the first-time buyer would be able to buy the property outright by using the savings as a deposit on the mortgage.