News International scandal leaves question mark over Cameron's future

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The News of the World phone-hacking scandal is set to run and run, which is bad news not just for Rupert Murdoch and David Cameron. Who will end up paying the price, and what exactly will that be, asks our political editor

DANIEL Morgan's body lay slumped next to his BMW in the car park of the Golden Lion pub in south London. The private investigator, originally from Wales, had been murdered, an axe embedded in his skull. It was March 1987, and the start of a tortuous and failed police investigation into a brutal killing which, to this day, has never been solved. And, bizarrely, it is the start of a episode which, last week, culminated in one of the biggest scandals in modern British history, leading to the downfall of its biggest-selling newspaper, the arrest of a key figure at the heart of government and – this weekend – poses a major question mark over the future of the country's Prime Minister.

Only a few months ago, at the Downing Street office party, Andy Coulson, then David Cameron's communications chief, had brought the house down in a karoake bar by teaming up with one of Nick Clegg's advisers to sing "Then I go and spoil it all, by saying somethin' stupid like I love you." Christmas Coalition kitsch has now given way to the possibility of summer in the cells.

Tabloid editors like Coulson have long faced accusations that they only build up public figures to bring them down. The 43-year old's fall from grace – from Downing Street powerbroker to humiliated police suspect, in the space of six months – is the kind of riches to rags story that his former self would have lapped up. Coulson's arrest on Friday, on allegations of corrupting police officers and hacking phones, brought an extraordinary end to a week which today sees the end of the country's best selling newspaper. This weekend, the question is where does the story go next? Who else might be felled by what one newspaper yesterday described as Britain's Watergate?

The brutal demise of Morgan is a good a place to begin. In March of this year, twenty-four years of injustice was cemented when Morgan's murder trial collapsed amid admissions from Scotland Yard that it had been bedevilled from the start by corruption. The man acquitted that day was Morgan's former business partner, a man called Jonathan Rees. Rees's living was made in a very similar fashion to his fellow private investigator, Glenn Mulcaire – the man whose notebook last week yielded up a list of names drawn from tragedy and celebrity who had been the subject of the paper's inquiries: from murdered teenager Milly Dowler, to the relatives of the 7/7 bombing victims, to the bereaved families of troops who had died in Afghanistan and Iraq.

Like Mulcaire, Rees earned a hefty shilling – estimated at around 150,000 a year – providing information for the News of the World and, it is understood, other tabloid newspapers based in London. His tactics were unscrupulous: like Mulcaire, he is alleged to have used corrupt police officers, bank workers and phone company employees to obtain information through illegal means. Police bugged him as part of their inquiries and saw him hatch plans to plant cocaine on one woman so that her ex-husband would get custody of her children. He was jailed.

Rees has not yet been part of the Met investigation into the News of the World, with all the attention so far focusing on the work of Mulcaire. But it is Rees's case which, arguably, could prove the more important, with two public inquiries and numerous criminal investigations now underway.

Like Mulcaire, Rees is understood to have been working for the News of the World when Coulson was editing the paper. In 2008, after Coulson had left to go work for Cameron, Rees was charged formally with Morgan's murder. Reporting of his case was therefore banned, but his activities had already been widely publicised. In particular, the Guardian had published two stories as far back as 2002 about his corrupt methods.

Despite those revelations having been in the public domain, Rees is understood to have been re-hired by the News of the World after he was released from jail, when Coulson was editor. On Thursday last week, Alan Rusbridger, editor of the Guardian claimed that prior to last year's general election, and ahead of Rees's trial, he had warned a key aide to Cameron about Coulson's links to the accused. Rusbridger says he also spoke to Nick Clegg about it.

"We knew there was this big murder trial coming which involved one of the investigators that Coulson had used (Rees] and it seemed reasonable that we should warn Cameron that before he took Coulson into Number Ten that he should ask some inquiries about this. I know I'm not the only person in Fleet Street who got this warning through to Cameron to say – beware," Rusbridger said.

Thus emerges a deeply damaging scenario that Cameron may have known full well of Coulson's unsavoury links to law-breakers such as Rees, but decided to put him in Downing Street nonetheless. According to reports yesterday, Rusbridger's warnings were also made by the Guardian's deputy editor Ian Katz, both direct to Cameron's close aide Steve Hilton. Hilton passed the warnings onto Cameron's chief of staff Ed Llewellyn but – it is claimed – he did not then tell Cameron himself.

The Morgan investigation also poses further questions at News International. In parliament last week, Labour MP Tom Watson asserted that, as far back as 2002, during a previous Met investigation into the Morgan killing, Rebekah Brooks, then the News of the World's editor, had been warned by police that her staff were carrying out surveillance on the police officer in charge of the inquiry, David Cook. Her staff were "guilty of interference and party to using unlawful means to attempt to discredit" Cook, claimed Watson. The paper's staff, he added, were "doing so on behalf of known criminals. We know now that News International had entered the criminal underworld."

The questions trip over themselves. Which criminals? Who knew? What did Brooks do about it? Did Coulson know about it as well? What did he do? And most of all, did the British Prime Minister decide to give Coulson a seat at the very top of government in the full knowledge of these sordid allegations?

Another issue the Rees case raises is just how much further this scandal could run – for Cameron, for News International but also for the wider British press as well. After all, Rees and private investigators like him worked for other papers too. How much more might come out about their tactics?

Such questions were being put last week by First Minister Alex Salmond, who highlighted an inquiry by the Information Commissioner in 2006 which reported numerous breaches of data protection across most Fleet Street titles, linked to yet another investigator called Stephen Whittamore. One of the two public inquiries announced by Cameron on Friday, which will consider ethics within the media industry, is likely to probe this further.

During his press conference on Friday morning, Cameron insisted that the illegality had to end. He blamed the cosy consensus that, he noted, has long existed between influence-hunting politicians and a news-hungry media. But the difficulty for Cameron is that, as with the political response to the MPs expenses affair, his outrage simply rebounds back on himself – for Cameron is steeped in the political-media nexus which now produces its most powerful players.

A former PR man himself, Cameron is close to figures such as Brooks, who lives near his Oxfordshire constituency home and whose husband, Charlie Brooks, is an old school friend. Cameron is also close to PR guru Matthew Freud, married to Rupert Murdoch's daughter Elisabeth. All were present at the Brooks' wedding two years ago. Meanwhile Coulson, said Cameron on Friday, was also "a friend", and not just a professional associate. The clique goes by the name of the "Chipping Norton Set" – named after the village near where Cameron and Brooks live.

Like Blair and Brown before him, Cameron thus stands accused of getting too cosy with Rupert Murdoch's acolytes, and thus blinded to the risks he was taking with Coulson's appointment. It was shown, say his critics, by the notably uncomfortable way Cameron answered questions about Brooks' position last week. First he said it wasn't his position to offer an opinion. By Friday, in a tortuous formulation, he declared that, had he been in the position of being offered her resignation, he would have taken it.

Cameron now faces as much as two more years of drip-drip revelations about News International's actions, as the public inquiries and possible criminal trials wind their way through the process. The issue eats into the question of his judgement. Coulson, we now know, stands accused of paying police officers for stories, according to documents passed to the Met from News International last month. He also stands accused of possible perjury when, in giving evidence to the Tommy Sheridan trial, he denied having done so.

The questions for Cameron are the oldest in the book: what did you know and when did you know it? Warnings were given to Cameron's office about Coulson before he went into Downing Street. And yet Cameron put him in nonetheless. When, then, did he become aware of the police interest in Coulson as a possible law-breaker? At that point, did the prime minister cut him loose, or protect him? Cameron looks trapped: by insisting he knew nothing about the dangers of keeping Coulson on board, he may avoid being seen to condone illegal acts, but only by admitting that, effectively, he was not fully in control of his own inner circle of aides.

Such questions were being put vociferously by Ed Miliband last week. The Labour leader knows that successful opposition leaders are the ones who manage to both shape and express the public mood on stories that break through the usual daily clutter. His early call for Brooks to quit ensured that Cameron, who had spent the early part of the week visiting troops in Afghanistan, looked off the pace. Miliband's team now feel that, with the questions of Cameron's hiring of Coulson mounting, they have the Tory leader on the run.

Politically, the affair is dynamite for Labour. Miliband's strategists know that Cameron remains more popular than his party – and that the Conservatives hope to exploit Cameron's relative popularity, against Miliband's relative unpopularity, as the key element in any future election campaign. Reducing Cameron's aura of competence is therefore crucial to their hopes of getting back into power. He should be careful not to go too far though, the Tories mutter darkly. On Friday, former Tory deputy chairman Lord Ashcroft penned a vituperative article about Miliband's own press handler, Tom Baldwin – himself a former News International journalist – who, Ashcroft claims, had used a private investigator to find details of the tycoon's bank account payments.

Miliband rebutted the allegations, but the sense of glass houses and stones lingers around the Labour leader's attacks. After all, he too was present at a News International reception in London's Orangerie earlier this summer, as well as Cameron.

Ultimately though, opposition leaders are there to oppose. Opportunism is part of the job description. For Cameron, there is no such luxury. His question and answer session on Friday with journalists was the most tense few minutes he has had to endure since coming to office. Rusbridger's warning about Coulson and the Rees trial had not got through to him. "I wasn't given any specific information about Andy Coulson ... I don't recall being given any information," he said. He would have to "check with his officials", he went on.

It's an old truism of politics that it isn't usually the mistake that brings you down, but the cover-up. Cameron can expect a barrage of questions and the most forensic scrutiny over his knowledge of Coulson's inglorious past. Troublingly for him, those questions won't just last weeks or months, but possibly years into the future. What assurances did he get? Who did the checking? Was it just a question of taking your friend's word for it? The slightest inconsistency in his story now, if proven wrong in the coming years, would be politically fatal.

News of the World reporters famously used to sign off racy first-person articles of encounters with criminal low-life with the words "I made my excuses and left". Cameron will have few excuses if his facts don't stack up over the scandal that has brought one of Britain's greatest papers to extinction today.

And if they don't, it'll be him that's doing the leaving.