Cameron returns to News of the World bloodbath

David Cameron returns from Afghanistan to find himself in a tight spot over the News of the World phone hacking scandal. It has been revealed that e-mails handed over by News International to Operation Weeting appear to show that the PM's former media adviser, Andy Coulson, personally approved payments to the police when he edited the paper between 2003 and 2007.

This could explain how the NoW hacker-in-chief, private investigator Glenn Mulcaire, obtained the mobile telephone numbers of some of his targets.

In the latest twist in the saga, which has turned distaste at the hacking of celebrity mobiles into public revulsion at the alleged eavesdropping on the families of murder victims, the police believe the targets included Graham Foulkes, whose son David was one of the 7/7 London bombing victims.

News International insisted on Tuesday night that the payments to the police did not relate to the period from 2000-2003 when Rebekah Brooks was the paper's editor, suggesting the handover of emails may be an attempt to deflect the scandal on to Coulson.

Rebekah Brooks, now chief executive of News International, continues to insist that the use of phone-hacking during her editorship is all news to her. This is despite the Guardian's claim, published on Monday afternoon, that the voicemail of murder victim Milly Dowler was hacked into on behalf of the News of the World – thus hampering the police investigation.

This revelation was followed yesterday by news that police have apparently contacted the father of the Soham girls, Holly and Jessica Chapman, to warn him that his phone may have been hacked into by Glenn Mulcaire in August 2002, before the girls were found murdered by Ian Huntley.

Significantly, Andy Coulson was not told by News International about the e-mails they were passing to Operation Weeting.

As BBC political editor Nick Robinson says, it shows those in the firing line are no longer standing together. Even the Times, produced from the same Wapping stable as the News of the World, ran a front page item yesterday on how Ford had suspended advertising indefinitely with the NoW and that other household names including Halifax, NPower and Tesco are reported to be considering pulling their advertising because of the outrage among people who might otherwise boycott their products.

Today, the Times followed that up with a leader stating: "This is a watershed moment for British journalism. What happened needs to be investigated and, in the public interest and the interests of journalism itself, brought to light. It ought to go without saying that nothing of this nature can ever happen again."

Cameron had hoped to stay out of the hacking controversy after Coulson resigned as his director of communications in January to avoid his boss any further embarrassment.

So far the PM has resisted a public inquiry into the scandal on the grounds that it is under investigation by the police, but it will look now as though he is protecting himself from questions about his own close relations with the Murdoch personnel at the centre of the storm.

Cameron had Christmas lunch with Rebekah Brooks despite the growing controversy last year and he continually stood by Andy Coulson when calls for him to resign were at their peak.

The question now being asked is whether Cameron was prepared to suspend his judgment because the Murdoch titles backed the Tories at the last election, increasing the impression Cameron has a vested interest - just like Labour's Tony Blair before him - in keeping close to Murdoch's minions.

The calls for an inquiry will grow today at an emergency Commons debate granted by the Speaker, John Bercow, after the mood of politicians and the rest of the country changed dramatically after the Milly Dowler news came out.

What has clearly sickened people is the allegation that Mulcaire and the NoW actually deleted messages in Milly Dowler's voicemail box to make room for more. As Peter Burden reported here yesterday, this gave the false impression to Milly's family and friends that she was still alive.

As each day passes, it becomes clear that the actor Hugh Grant, another hacking target of the NoW, was right to describe the hacking of celebrities' voicemail as "the tip of the iceberg".

Rebekah Brooks is refusing calls for her resignation, and for the moment Rupert Murdoch appears to be standing by her. That could change, however, with advertisers pulling out of the NoW.

If one thing motivates Murdoch, it is money, and many Wapping and Westminster observers believe that if Brooks needs to be sacrificed, it will happen – and soon. Even Mumsnet, the online networking system for mothers, is pulling £30,000 worth of advertising from Sky, showing how the contagion could quickly spread across the Murdoch empire.

There is even more money riding on the government's decision about the future Murdoch's money-making milch cow, BSkyB.

Cameron's government is up to its neck in the affair because it has to decide whether or not to allow Murdoch to acquire the remaining stock he does not already own in BSkyB. The consultation period ends this Friday.

So far, culture secretary Jeremy Hunt has pleaded that his hands are tied - that he has to judge the issue on grounds of 'plurality' in the British media, regardless of the behaviour of the company.

If Hunt gives Murdoch the go-ahead, he can be sure there will be legal challenges as to the fitness of the Murdoch empire to own so much of the British media while Rebekah Brooks remains chief executive of News International. On top of that, Cameron's government will be accused of turning a blind eye to criminal acts to ensure it gets the continued support of Murdoch's huge-selling daily, the Sun.

This is the time for the Liberal Democrat half of the coalition, led by Nick Clegg and Vince Cable, to show some backbone and stop the BSkyB acquisition going ahead. They can afford to stand up to Murdoch, and they should now be prepared to stand up to Cameron. ·