Cameron’s reputation is on the line over Murdoch crisis

Nick Clegg will meet the family of murdered schoolgirl Milly Dowler in Downing Street today, leaving the Prime Minister free to launch reforms of the public services. Cameron has postponed meeting the Dowler family because he wants to show that despite being personally mired in the News International phone hacking scandal, it is 'business as usual' at Number Ten. It won't work.

Cameron is so damaged by his continued personal friendship with the leading figures in the scandal, Andy Coulson and Rebekah Brooks, that plans to allow private companies to bid for emptying the bins will not deflect attention from the serious questions about the prime minister's judgment.

The phone hacking crisis has also opened up a dangerous split in the coalition, which is being levered open by Ed Miliband.

Clegg's Lib Dem MPs are now preparing to break with the Tories and vote with Labour on a Commons motion this Wedensday calling for the takeover of BSkyB by Rupert Murdoch's News Corp to be delayed until 2013 at the earliest.

The threat of the delay has already wiped £1bn off BSkyB shares and slashed the value of News International shares.

Murdoch flew into London at the weekend because he has billions riding on the deal going through.

Last night, in a media scrum, the media tycoon said Brooks was his "priority". But the truth is BSkyB is his priority. And you can be sure that Murdoch or his aides are putting huge pressure on Cameron, making it clear that if he allows the bid to be blocked on the grounds that the executives of News Corp are not "fit and proper" to hold a broadcasting licence, Murdoch will "sue the ass" off the government.

Inside the Cabinet, the shadow of Murdoch has caused a further split between two factions - one, led by Nick Clegg and Steve Hilton, Cameron's chief aide, who want to limit the influence of Murdoch over the government, and a second pro-News International faction led by chancellor George Osborne.

It was Osborne who was responsible for persuading Cameron to hire Andy Coulson in the first place, and who invited News International executives to his 40th birthday party at the grace-and-favour country residence, Dorneywood.

Others in the pro-Murdoch camp include - astonishingly, given his responsibility to oversee the BSkyB bid - culture secretary Jeremy Hunt and his deputy, Ed Vaizey.

Cameron had the chance to distance himself last Friday, when Coulson was arrested, but chose not to do so. Some naively praised his readiness to stand by his mate. It would not matter if they were just mates, but the BSkyB bid makes Cameron's chummy relationship with Murdoch's executives different. Murdoch once came close to bankruptcy and his global assets are threatened again if he is frustrated over the BSkyB bid.

We now know that both Nick Clegg and his Lib Dem predecessor Paddy Ashdown warned Cameron not to take Coulson with him into Downing Street in May 2010. Cameron ignored them both - as well as the advice of Guardian editor Alan Rusbridger, who could see what was coming.

It is not just Cameron's judgment that's being questioned as a result. It is worse than that. His character is on trial too.

He has built up a media-friendly image as a jokey, engaging politician - the true heir to Blair and quite the opposite of Gordon Brown. But those who know him understand there is another side to Cameron that showed itself when he was head of communications at Carlton Television. Tory-supporting journalist Peter Oborne summed it up as "the sharp-suited media operator who will do what it takes to get to the top".

Others say it's the Old Etonian in him - an arrogance that allows him to ignore his advisers and do his own thing if he feels like it.

Either way, this side of Cameron - the one pilloried in parliament as 'Flashman' - will have trouble getting re-elected.

No wonder Ed Miliband is finally smiling as he lights the blue touch-paper today by tabling the motion for the vote on Wednesday. The Labour leader has had a 'good war' over phone hacking. On Thursday, he has invited Lobby hacks to drinks in his private office at the Commons. He is calculating on it being a celebration. ·