Media playback is unsupported on your device Media caption PMQs: Cameron and Miliband clash on banking

David Cameron and Ed Miliband have clashed in the Commons over the terms of an inquiry into the interest rate-rigging scandal surrounding Barclays.

The prime minister said a single parliamentary inquiry into the "appalling" events would be the most "swift and decisive" course of action.

But Labour's leader said this was "too narrow" and a much wider judicial probe into the culture of banking was needed.

Former Barclays boss Bob Diamond has been questioned by MPs .

At Prime Minister's Questions, Mr Cameron said the manipulation of the key Libor inter-bank borrowing rate by Barclays traders was "outrageous" and those responsible for "spivvy and probably illegal activity" should be held to account.

"People want to know that crime in our banks, crime in our financial services, will be pursued and punished like crimes on our streets," he told MPs.

The Commons will vote on Thursday about whether to back the government's call for an immediate inquiry by a committee of MPs and peers or Labour's alternative proposal for a judge-led probe - similar to the current Leveson investigation in press standards.

'Failed to act'

Mr Cameron said he favoured the first course "to get to the bottom of what happened and quickly".

Media playback is unsupported on your device Media caption Ed Miliband repeats a 2008 quote from David Cameron on 'too much regulation' in banking

But Mr Miliband has proposed a two-stage public inquiry. This, he said, would focus on the specific allegations facing Barclays to report by the end of 2012 followed by a broader year-long probe into banking standards and practices.

Mr Cameron said he would respect the will of MPs about which course of action they chose and he urged Mr Miliband to do the same.

Downing Street has confirmed Mr Cameron held talks with Mr Miliband on Tuesday about the nature of any inquiry and No 10 still hoped it would be possible to gain cross-party support for the way forward.

But, in heated exchanges in the Commons, Mr Miliband said the prime minister did not understand the "depth of public concerns" about the matter and was failing to act in the national interest.

"Whenever these scandals happen, he has failed to act and he stands up for the wrong sort of people.

"His party is a party bankrolled by the banks. If he fails to order a judge-led inquiry people will come to one conclusion. He simply cannot act in the national interest."

Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms: AAA-rating AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

But Mr Cameron said the wrongdoing had taken place while Labour was in office and "people would take a very dim view of an opposition that stands in the way of an inquiry because they do not want their dirty washing done in public".

The prime minister also said it would be "inexplicable" if Barclays bosses who have left the firm as a result of the crisis received "vast" pay-offs.

The BBC's political editor Nick Robinson said Labour was likely to lose the vote on the judicial inquiry if the Lib Dems, as expected, backed their Conservative coalition partners.

If this happened, he added, Mr Miliband would face a "simple choice" on whether to accept the parliamentary probe or risk being blamed for voting down an inquiry.

However, he said the motion for the Parliamentary inquiry was vague and therefore open to change and it was significant No 10 had said the committee could, in effect, set its own remit.

Media playback is unsupported on your device Media caption Lady Vedera "I didn't speak to Paul Tucker or anyone at the Bank of England about the rate-setting of Libor."

Ahead of Mr Diamond's appearance before MPs, Chancellor George Osborne has denied suggestions - suggested by the record of a phone call involving the ex-Barclays boss - that the Bank of England urged the bank to get its Libor rate down.

In an interview with the Spectator , Mr Osborne is quoted as saying this charge has been "specifically addressed, not just by our own investigators at the Financial Services Authority but also in the US Department of Justice and they are not people who will pull their punches".

Mr Osborne also accused former Labour prime minister Gordon Brown and his advisers of involvement in the setting of the Libor rate in 2008.

Baroness Vadera, a former Labour business minister who was close to Mr Brown, denied having any conversations with Paul Tucker, the deputy governor of the Bank of England, about the Libor inter-bank interest rate.

[The] inconvenient truth is that even when Libor is not "fixed", it may still not bear very much relation to reality

Speaking on BBC Radio 4's The World at One, she said: "I didn't speak to Paul Tucker or anyone at the Bank of England about the rate-setting of Libor."

But she added: "It was a competely legitimate concern of government and regulators to worry about the access to credit and the cost of credit to the real economy. That was what the financial crisis was about."

Bank of England Deputy Governor Paul Tucker has asked for a hearing with the Treasury Select Committee as soon as possible to "clarify the position" with regard to the rate-fixing scandal and a telephone conversation with former Barclays boss Bob Diamond.