‘Dr Fox fell foul of the standards and he broke the rules’

After nine days of unrelenting pressure, it is understood Dr Fox was told he would lose the support of Prime Minister David Cameron when an investigation into his conduct is published by Cabinet Secretary Sir Gus O’Donnell.

In a letter to Mr Cameron, Dr Fox accepted he had allowed the distinction between his personal interests and government activities to become “blurred”.

The Prime Minister moved quickly to replace him by promoting Transport Secretary Philip Hammond and handing the transport brief to Treasury minister Justine Greening.

Last night, it emerged Dr Fox apparently approached a prominent venture capitalist to help to bankroll a company run by Mr Werritty, his former flatmate and best man.

The businessman, Jon Moulton, claimed that after last year’s general election he was asked by Dr Fox to provide funds to the firm Pargav, a not-for-profit company set up by Mr Werritty which he was told was involved in “security policy analysis and research”.

Pargav was reportedly used to fund Mr Werritty’s jet-set lifestyle following the defence secretary on international engagements.

After a statement in the Commons on Monday, Dr Fox appeared to have done enough to save his job, with Tory backbenchers rallying behind him. Mr Cameron, however, was notably absent.

Throughout this week, fresh questions arose over the former defence secretary’s contact with Mr Werritty, who is 17 years his junior and originally from St Andrews.

The pair were on 18 of Dr Fox’s 48 foreign trips as a minister, and Mr Werritty visited his Whitehall office 22 times.

In total, they met 104 times since last year’s general election, and concerns remain over whether Mr Werritty had access to classified information.

Yesterday’s resignation has left a severe imbalance in the government, and there were fears last night that Dr Fox’s departure could fuel a right-wing backlash against Mr Cameron’s modernisation agenda for the Tories and the coalition with the Liberal Democrats.

Questions over Dr Fox’s contact with his friend first arose as a result of a lawsuit in the United States involving Harvey Boulter, who ran a company called Cellcrypt.

Mr Boulter said he was introduced to the then defence secretary in Dubai in April by Mr Werritty, who produced a business card claiming to be Dr Fox’s adviser, even though he was not employed by the Tories or the Ministry of Defence.

That led to further questions over how Mr Werritty was funding his foreign trips, as it emerged his consultancy made only £20,000 in four years.

It was then claimed that wealthy donors were paying for Mr Werritty on Dr Fox’s behalf, with £147,000 paid into the Pargav bank account that funded his first-class travel around the globe.

Doubts remained about the influence of outside interests and some of the ventures Dr Fox had been involved in, not least his charity to help bring peace to Sri Lanka, the Sri Lankan Development Trust.

The charity’s London address in the book of registered interests was actually the home of G3, a strategic advisory company that carries out investigative work.

In his resignation letter yesterday, Dr Fox, who was the most senior Scot in the Cabinet, told Mr Cameron he had “mistakenly allowed the distinction between personal interest”.

He added: “The consequences of this have become clearer in recent days. I am very sorry for this.”

Mr Cameron’s advisers said the Prime Minister then asked Dr Fox in a telephone conversation “if he was sure” he wanted to resign.

But party insiders have made it clear that the message was delivered to Dr Fox by a senior Cabinet member that he had to resign, as Sir Gus’s report was expected to be damning and he would no longer have the confidence of the Prime Minister.

In his letter of response, Mr Cameron paid tribute to the “superb job” Dr Fox had done at the Ministry of Defence.

“I understand your reasons for deciding to resign as defence secretary, although I am very sorry to see you go,” he said.

Mr Hammond, who walked through the 10 Downing Street front door less than an hour after Dr Fox’s resignation was announced, is seen as a safe pair of hands and is respected for being able to make savings in departments.

Earlier in the week, shadow defence secretary Jim Murphy told Dr Fox that he had “driven a coach and horses through the ministerial code of conduct”. However, he had not called for the defence secretary’s resignation, saying the truth needed to come out.

Last night, Mr Murphy said: “This was unavoidable and inevitable. Throughout these events I haven’t called for Liam Fox’s resignation, but just the full truth.

“Governments must have rules and ministers must have standards. Liam Fox fell foul of the standards and he broke the rules. It was clear early on that he had breached the Ministerial Code.”

Mr Murphy added: “This issue has centred solely on his judgment and his conduct in one of the most serious jobs in the country.

“With so much at stake for our forces, the defence secretary must be focused solely on his public duties.

“The government has shown how out of touch it is by spending the whole of the last week worrying about how to save Liam Fox’s job.

“That time should have been better spent trying to save the jobs of tens of thousands of hard-working people.”

Friends and allies of Dr Fox paid tribute to the work he had done in his 18 months as defence secretary.

Former defence secretary Sir Malcolm Rifkind, a Scottish Tory grandee, said Dr Fox’s resignation was “inevitable, given what has emerged in the last few days”.

He claimed that Dr Fox was guilty of “poor judgment”, adding: “There’s no hint of impropriety, or corruption or illegality or anything of that kind, but believing that he could have this private arrangement that enabled him to maintain lots of political contacts and pursue some of his political objectives in parallel with being a secretary of state, but with the framework of government, that was going to be an accident waiting to happen.”

Meanwhile, members of the Thatcherite wing of the party were aggrieved that their standard-bearer had not been replaced in the Cabinet by somebody with similar views, but admitted Dr Fox had little choice but to resign.

Senior Tory back-bencher Bernard Jenkin, a former shadow defence secretary, said: “I am very sorry that Liam has felt compelled to resign, but he will know that he is doing the right thing.

“The main concern must now be to ensure continuity in the MoD, one of the most challenging of departments, at a time when our armed servicemen and women are highly stretched on combat operations.”

Former Liberal Democrat leader Sir Menzies Campbell said: “Dr Fox has bowed to the inevitable. It had become impossible for him to draw a line under the story. These events had undoubtedly begun to affect his authority and the morale of his department.”