Why Cameron and Osborne fear losing their firewall

When Jeremy Hunt delivered his less than certain Commons statement on his role in the BSkyB bid and the Frédéric Michel emails last Wednesday, David Cameron and George Osborne remained on the front bench next to the embattled Culture Secretary. For more than an hour, the Prime Minister and Chancellor were unable to move – to leave would suggest they were hanging Hunt out to dry.

But their expressions revealed they were less than happy at their position. Cameron, who did not make eye contact with Hunt as the minister arrived at the Dispatch Box, appeared annoyed that he had to show his support. Next to him on the front bench sat Osborne, already grim-faced after news of the UK returning to recession.

Ultimately, however, they could not move because these two men are personally as bound up in the current scandal as the hapless Culture Secretary and his special adviser Adam Smith, who had resigned that morning. This weekend, with Hunt's job hanging in the balance, Cameron and Osborne are weighing up whether to save the Culture Secretary or to force him to resign. The refusal by No 10 to order a separate inquiry into Hunt's conduct shows the balance is currently tipped in favour of saving him. To let him go would be to tear down the firewall between News Corp, with Rupert Murdoch, his son James and Rebekah Brooks on one side, and the highest ranks of the Tory party, with Cameron, Osborne and the Education Secretary, Michael Gove, on the other. The Prime Minister recognises that it is the closeness to the Murdoch empire of these three at the top of government that goes to the true heart of the scandal.

In February 2009, News Corp, under its chief executive, James Murdoch, hired Frédéric Michel as its European public affairs director. Michel was to start smoothing the path for News Corp's bid to take over BSkyB, which would be announced following the 2010 election. With the Tories predicted to win that election, the contacts between News Corp and Cameron were stepped up. A year earlier, Cameron visited Rupert Murdoch on his yacht off Santorini, and had meetings with his son James and Rebekah Brooks, then editor of The Sun, promoted to chief executive of News International (NI) in June 2009.

That summer, according to sources, Osborne ordered Hunt to get close to James Murdoch. And when further revelations of phone hacking at the News of the World emerged in July that year, Osborne took the extraordinary decision to rubbish them and attempted to distance Andy Coulson, the No 10 spin-doctor he helped to hire after resigning over hacking in 2007, from the fresh allegations.

In an interview with The Independent on Sunday during the Norwich North by-election in July 2009, the shadow chancellor insisted: "I see no new allegations that are directly connected with Andy Coulson. I think it's up to those who made the allegations to substantiate them and I've not seen those allegations substantiated to date. And I thought it was pretty significant that the police came out and made it clear that they'd investigated all of this and there was no new evidence." In hindsight, it is easy to see why Osborne was so keen for the scandal to die down.

In August 2009 Murdoch Jnr delivered a blistering attack on the BBC and Ofcom at the MacTaggart Lecture at the Edinburgh Festival. That same month, Hunt took a trip to New York, where he met News Corp executives. Despite the putative BSkyB bid being mulled over inside News Corp, Hunt's aides have insisted that the issue of the satellite broadcaster did not come up.

Cameron was summoned to a meeting with James Murdoch at George, a private members club in Mayfair, in September 2009, where he was informed that NI titles would switch their allegiance back to the Tories from Labour.

It is clear that, from 2009, both the Tory and News Corp ships were sailing in the same direction. Once the BSkyB bid process started, the close links continued. The contacts that Hunt and Cameron had with the Murdochs have been widely reported. But it was also Osborne and Gove who were frequent dining companions of the media family.

Government documents reveal that Osborne met senior NI figures, including Rupert and James as well as Brooks, at least 10 times in the first 15 months after he became Chancellor. Gove met his most senior former colleagues at NI on at least 12 occasions in his first 15 months as Education Secretary.

Most importantly, however, was Cameron's contact. In a statement to the Commons in July 2011, the PM insisted he had had no "inappropriate conversations" with James Murdoch or other News Corp executives. However, as we now know after Murdoch Jnr's evidence to the Leveson inquiry last week, he did discuss the bid with Cameron in December 2010. Hunt told the Commons last Wednesday that the conversations were not "inappropriate" because Cameron was not in charge of the decision – a claim that stretches credulity, at best.

Those who opposed the BSkyB bid were astonished to discover the special treatment given to Murdoch. The campaign group Avaaz, which mustered 40,000 people to respond to the government consultation, felt shut out in the cold. Repeated demands for a meeting were rebuffed. "We were well on Jeremy Hunt's radar. His special advisers would have clocked that Avaaz were out there, yet when we phoned up we got the brush-off," said its campaign director, Alex Wilks.

In fact, the only meeting the group had was last April, outside a Sainsbury's supermarket in Godalming, in Hunt's Surrey constituency. "His main point was that he was scared that 'lawyers on both sides are ready to sue the pants off me if I mess up the scrutiny of this deal'," Wilks recalled. In May, Hunt slowed the consultation process, citing the huge response.

Wilks said this weekend: "It is outrageous that Jeremy Hunt, while claiming to be fair and looking into all sides... was leaning over backwards to communicate with Murdoch's people and yet ignore members of the public. David Cameron should show leadership and show Jeremy Hunt the door."

But, as things stood last night, Cameron is staying his hand. A hint of the lengths No 10 is going to to save the Culture Secretary came in the revelation that the Cabinet Secretary, Sir Jeremy Heywood, phoned Lord Justice Leveson on Tuesday in an effort to help Hunt. Officials claimed Heywood had been trying to ensure that "all key" witnesses, including those likely to support Hunt's defence, would appear as part of the inquiry. But critics said he had been trying to interfere with an independent process.

Calls for Sir Alex Allan, the PM's independent adviser on the Ministerial Code, to investigate the allegations against Hunt have been stonewalled.

The IoS understands that Heywood was asked to make the call because it was deemed inappropriate for Hunt himself to do it, but Leveson officials are understood to have been "bewildered" by the approach. However, with time apparently running out for Hunt, Cameron and Osborne's firewall is at risk, and things are about to get much more uncomfortable for the two men.

He's no Walter Mitty, but a key player

Under the cloak of parliamentary privilege, a Tory backbencher last week described News Corp lobbyist Frédéric Michel as a "Walter Mitty" figure who had exaggerated his influence with Culture Secretary Jeremy Hunt to impress his boss, James Murdoch.

But Michel – Fred to his friends – has played a key role behind the political scenes for more than a decade. Ten years ago, he was director of the New Labour think tank Policy Network; Peter Mandelson was chairman. With centre-left politics in the ascendant, he helped organise a private summit between the Prime Minister, Tony Blair, and former US president Bill Clinton. The awayday at Hartwell House in Buckinghamshire was dismissed by John Prescott (not invited) as a gathering of a "bunch of wonkers", but guests included the rising stars David Miliband and Yvette Cooper, as well as Mandelson himself.

Michel left Policy Network in 2003 – amid reports of a falling out with Mandelson – to set up his own PR firm, ReputationInc. But his stock soared again when James Murdoch appointed him News Corp's director of public affairs for Europe in February 2009. Here, he began an under-the-radar operation to launch News Corp's bid to take over BSkyB. This included James Murdoch's MacTaggart lecture at the Edinburgh Festival in August 2009, in which the News Corp heir launched an incendiary attack on the "chilling" activities of the BBC.

As we now know, Michel's lobbying stepped up after the bid was formally announced, post the 2010 election, when he began dealing with Hunt's adviser Adam Smith. In early December 2010, Michel was approached by the EU foreign affairs chief, Baroness Ashton, to be her spin-doctor. He never made the move. Days later Vince Cable was caught in a sting and the decision on the BSkyB bid was passed to Hunt.

Michel is not the first person to be dismissed as a "Walter Mitty" figure – David Kelly was famously described as such by No 10 after his death, a slur that was shown to be untrue and which continued to haunt Blair's government. It is a lesson Hunt and David Cameron would do well to heed.

Jane Merrick

The circumstantial evidence

January 2006 Rupert Murdoch has lunch with David Cameron and George Osborne.

May 2007 Andy Coulson becomes David Cameron's spin-doctor.

February 2009 James Murdoch hires PR man Frédéric Michel to lobby for BSkyB bid.

July 2009 First details of News of the World's cover-up of phone-hacking.

December 2009 News International CEO Rebekah Brooks hosts Christmas dinner, with the Camerons, the Osbornes and the Murdochs.

February 2010 Shadow Culture Secretary Jeremy Hunt discusses Sky's commercial interests with James Murdoch.

May 2010 The Conservatives form a coalition government.

June 2010 News Corp announces its bid for BSkyB.

November 2010 Vince Cable refers the BSkyB bid to Ofcom.

21 December 2010 Cable is removed from bid decision, Hunt is put in charge.

23 December 2010 The Camerons and James Murdoch attend Christmas dinner at the Brookses. The bid is discussed.

31 December 2010 Ofcom tells Hunt the bid might have to go to the Competition Commission.

6 January 2011 James Murdoch meets Hunt and officials at the DCMS.

21 January 2011 Andy Coulson resigns from 10 Downing Street.

24 January 2011 Hunt's office supplies News Corp with advance details of market-sensitive statement to be released the following morning.

26 January 2011 Metropolitan Police officially reopen NOTW phone-hacking inquiry.

February 2011 Ofcom demands safeguards from News Corp.

March 2011 Hunt announces green light for revised deal, subject to competition concerns.

June 2011 Hunt sanctions the bid, subject to consultation.

4 July 2011 The Guardian reveals NOTW hacked Milly Dowler's phone.

6 July 2011 Cameron announces inquiry into phone-hacking.

7 July 2011 Rupert Murdoch announces closure of NOTW.

8 July 2011 Coulson arrested over phone-hacking allegations.

1 September 2011 Leveson inquiry starts hearing evidence.

26 April 2012 James Murdoch gives evidence; emails reveal extent of his contact with Hunt's office during the bid process.

27 April 2012 Adam Smith, Hunt's adviser, resigns over relationship with News Corp; Hunt tells Parliament he did not act improperly.

28 April 2012 Leveson rejects Hunt's request to give evidence early; Downing Street rules out inquiry over alleged breach of ministerial code.