Sue Gray could be handed a seat in the House of Lords to “soften the blow” of leaving as Sir Keir Starmer’s top advisor and possibly Downing Street altogether, it has been claimed.

Ms Gray landed the £170,000 role of Chief of Staff of Number 10 after Labour’s General Election win in July.

It was after her potential role was created during secret talks with Sir Keir around the time she penned the damning Partygate reports that led to the end of Boris Johnson’s premiership.

But, she was apparently forced to step down from the role this month following weeks of speculation about her role and reports of a “power struggle” at the heart of government.

She went saying “commentary” around her post “risked becoming a distraction to the government’s vital work of change”.

Ms Gray was given the alternative role of as the Prime Minister’s envoy for nations and regions, however, she generated further headlines after not attending the first meeting of the Prime Minister’s Council of the Nations and Regions in Edinburgh this week.

Now her overall future within the government is in question and she is still said to be recovering from the shock of recent events.

There is doubt over whether she will take on the new role, according to sources, and it has been alleged she could be given a peerage to soften any complete departure.

Sources told The Times that Ms Gray was concerned the trip to Edinburgh would “turn into a circus”.

They suggested discussions around giving her a peerage to “soften the blow” of any clear departure from Downing Street were underway.

The Sue Gray drama is one of a series of problems for Sir Keir in his first 100 days (Image: Getty)

A Government source said: “Sue’s future is the elephant in the room. Everyone knows things can’t go on like this.”

Some senior Labour insiders told the newspaper it was a matter of “when not if” Ms Gray departs Downing Street.

But, separate government sources categorically denied claims that Ms Gray was trying to negotiate a large severance package, saying that she would end up with much less than she was entitled to.

And, a source close to Ms Gray said they “did not recognise discussion about a peerage.”

Morgan McSweeney, the party’s former campaign director who masterminded July’s election landslide, has replaced her as the Prime Minister’s chief of staff.