Today's arrest of Rebekah Brooks, who was until Friday the chief executive of News International, represents perhaps the greatest failure to date in the Murdoch-controlled group's campaign for rehabilitating itself.

Because ever since News International and its parent company News Corporation were seriously damaged 13 days ago by the allegation that the phone of the murdered schoolgirl Milly Dowler was hacked at the instigation of the News of the World, News International has been on an explicit mission to demonstrate that Mrs Brooks was innocent of all wrongdoing.

Although Mrs Brooks was editor of the News of the World at the time of the alleged hacking, she has denied all knowledge of it. And she has denied she was aware of other alleged instances of phone hacking or of bribes allegedly paid to the police.

So the thrust of News International's message to the world was that Mrs Brooks was as shocked as everyone else by disclosures that appear to show that there was a culture at the News of the World of systematically breaching proprieties in the pursuit of stories.

If she was guilty of anything, said her colleagues, it was of not knowing what her subordinates were doing.

That ignorance while in positions of authority at News International was ultimately enough to persuade her to resign from the company on Friday - many days after there had been widespread calls, including a demand from her friend, the prime minister, for her to go.

But News International was still insisting she had done nothing fundamentally wrong. She was leaving only because she had become a lightning rod for criticism of the company which made it harder for any kind of equilibrium to be restored in the business. Or so her friends insisted.

To put it another way, the company's version of what happened at the News of the World and who was to blame has been implicitly challenged in a fundamental way by the decision of the Metropolitan Police to arrest her on suspicion of alleged involvement in phone hacking and corruption.

As a company executive said to me, "we just don't know what's going to happen next".

Now there are two reasons why News Corporation and News International were so keen to protect Rebekah Brooks.

First is that there is probably no one involved in the business, whose surname isn't Murdoch, who is as close to Rupert Murdoch, News Corp's chairman, as is Rebekah Brooks.

When they are together, he displays a conspicuous affection for her. "Some would say he is almost as close to Rebekah as he is to his children" said one of their colleagues.

And then there is a second reason why her arrest will be a blow both to Rupert Murdoch and to his son, James Murdoch, her immediate boss as head of News Corp's European operations.

Her ignorance of what happened at the News of the World reinforced their claims that they too had no knowledge of the alleged scale of abuses by the Sunday tabloid, which was closed down only a week ago.

The importance of today's events is that her claimed ignorance did not prevent her being arrested.

The other point about her arrest is that it is something of a shock to the political establishment, since she was on unusually good and friendly terms with three successive prime ministers, Tony Blair, Gordon Brown and the current tenant of 10 Downing Street, David Cameron.

If, as seems likely, her arrest prevents her from giving public evidence on Tuesday to MPs on the culture, media and sport Commons committee, her many friends in high places may be slightly relieved.

In the current climate of criticism of News International, there will be quite a few powerful people who would be pleased if the brightest possible media light isn't shone on their close and personal relationship with Mrs Brooks.

http://www.bbc.co.uk/news/uk-14180043

Met Police Commissioner Sir Pauk Stephenson 

quits over Phone Hacking and Police Bribery Scandal.

Metropolitan Police Commissioner Sir Paul Stephenson has resigned following the phone hacking scandal.

Britain's most senior police officer has faced criticism for hiring former News of the World executive Neil Wallis - who was questioned by police investigating hacking - as an adviser.

Sir Paul said his links to the journalist could hamper investigations.

He said there were lessons to be learned from the affair, but he was leaving with his integrity intact.

He also said he had no knowledge of the extent of the phone hacking.

Home Secretary Theresa May said she was "sorry" he had resigned and thanked him for all the work he had done during his time in office.

Earlier, she said she would address MPs on Monday about her "concerns" over the closeness of the relationship between News International and police.

Sir Paul said in a statement: "I have taken this decision as a consequence of the ongoing speculation and accusations relating to the Met's links with News International at a senior level and in particular in relation to Mr Neil Wallis."

He added: "Let me state clearly, I and the people who know me know that my integrity is completely intact.

"I may wish we had done some things differently, but I will not lose sleep over my personal integrity."

In other developments:

• Ex-News International chief executiveRebekah Brooks is arrested by policeinvestigating phone hacking and bribery at the News of the World
• Labour leader Ed Miliband calls for new media ownership rules to limit Rupert Murdoch's "dangerous" and "unhealthy" concentration of power
• An advert placed by News International in national newspapers on Sunday describes how the company is "putting right what's gone wrong"
• Several Sunday newspapers feature promotions in an attempt to woo former readers of the News of the World, which was the UK's best-selling newspaper
• News International says it has set up an independent management and standards committee to see how the company can prevent similar instances happening again
• John Whittingdale, chairman of the Commons media select committee, says former News International chief executive Rebekah Brooks will probably be spoken to separately from Rupert and James Murdoch on Tuesday when they appear before MPs, adding that the committee should not act as a "lynch mob"

Sir Paul has also faced questions over his stay with his wife at a luxury health spa which employed Mr Wallis.

The journalist was working as a public relations consultant for Champneys spa when Sir Paul recuperated from surgery there earlier this year.

The Met acknowledged Sir Paul had stayed there for free while he recovered from a fractured leg caused by an operation to remove a pre-cancerous tumour.

Sir Paul said he had informed Buckingham Palace, Ms May and London Mayor Boris Johnson about his decision.

Mr Johnson said he accepted the resignation with "great sadness and reluctance" and he had no reason to doubt his "complete integrity".

"I believe him to be a fine, passionate and committed public servant who has done a huge amount of good for our city," he said.

The chairman of the Home Affairs Select Committee - Keith Vaz - said he was "genuinely shocked" by the announcement.

"He was very keen that people realised that his integrity was intact, and I think what he basically said was, he was concerned about the leadership of the Met at this time," he said.

"It is a very brave decision, and I'm shocked by it, actually, because I don't think there's anything in the statement in particular that points to any wrongdoing or inappropriateness on the part of the commissioner."

Shadow Culture Secretary Ivan Lewis said Sir Paul had made the right decision and done the "honourable thing".

"He recognises that things have happened on his watch, which mean there will always be questions about his leadership," he said.

Sir Paul hired former News of the World deputy editor Mr Wallis as a PR consultant for the Met.

His media consultancy company - Chamy Media - was used by the force from October 2009 until September last year.

He was paid £24,000 to work as a two-day-a-month PR, until his contract was cancelled four months before the launch of the Operation Weeting investigation into phone hacking began in January this year.

As part of the contract, Mr Wallis advised the Commissioner's Office, and the Directorate of Public Affairs and Specialist Operations, working closely with Assistant Commissioner John Yates, who led an earlier Met inquiry into News of the World phone hacking.

http://www.bbc.co.uk/news/uk-14175552

Ed Miliband (left) and Nick Glegg (rigjht)

He told BBC One's Andrew Marr Show there was a need to "look again in the round at the plurality rules to make sure there is proper plurality in the British press".

"A healthy press is a diverse one, where you've got lots of different organisations competing, and that's exactly what we need," he said.

The Liberal Democrat leader said his party had been calling for the change for years but said he was "very happy to sit down" with Mr Miliband.

"The judge-led inquiry will, of course, during the course of a year, produce some ideas about what we should do - and then I think if we can act on it on a cross-party basis. as we did last week in the House of Commons, all the better," he said.

However, Defence Secretary Liam Fox told Sky News' Murnaghan programme that "politicians would be wise at the moment not to over-react", adding that it was "time for calmness and for people to look at these issues, yes seriously, but in a proper timescale and without hysteria".

He said further regulation of the press should only happen if it was "absolutely necessary".

"I think we have to be proportionate about how we deal with any of these issues, it can't be simply about jumping on bandwagons and getting today's headlines."

In other developments:

• Metropolitan Police Commissioner Sir Paul Stephenson has resigned, having faced criticism for hiring former News of the World executive Neil Wallis as an adviser. Mr Wallis is one of 10 people arrested by police investigating phone hacking claims
• An advert placed by News International in national newspapers on Sunday describes how the company is "putting right what's gone wrong"
• Several Sunday newspapers feature promotions in an attempt to woo former readers of the News of the World, which was the UK's best selling newspaper
• News International says it has set up an independent management and standards committee to see how the company can prevent similar instances happening again
• John Whittingdale, chairman of the Commons media select committee, says former News International chief executive Rebekah Brooks will probably be spoken to separately from Rupert and James Murdoch on Tuesday when they appear before MPs, adding that the committee should not act as a "lynch mob"
• News International has asked law firm Olswang to carry out an investigation and a former High Court judge is overseeing the company's compensation scheme for hacking victims

Various celebrities including actress Sienna Miller and football pundit Andy Gray have accepted damages from the compensation fund, believed to be worth £20m.

The Liberal Democrats have written to media regulator Ofcom calling for it to investigate whether the owners of the BSkyB licence are "fit and proper" following the allegations around News Corp.

Lib Dem deputy leader Simon Hughes, media spokesman Don Foster and party president Tim Farron have asked the watchdog to investigate in light of "the manifest public concern about News International's activities, the close integration of News International with its parent company News Corporation, (and) News Corp's effective control of BSkyB".

A spokeswoman for Ofcom said: "We received this letter early on Friday evening. We will be considering our response next week."

She added that the regulator was continuing to gather information and has already written "to a number of relevant authorities and can confirm that follow-up meetings will now be taking place."

Rather, it is as a source of influence over public opinion and politics.

And from this standpoint, its value to News Corp may already have been destroyed by the phone hacking scandal.

The crisis is already threatening to spread to News International's other titles, with former prime minister Gordon Brown accusing the Sunday Times of hiring criminals to target him personally - allegations rejected by the company.

There is talk that the entire business could now be put up for sale.

But, as the BBC's business editor Robert Peston points out, the scandal has hurt the entire UK newspaper industry, making News International less attractive to potential buyers.

"The question is, who is going to pay him the price that they are worth? He will not want to sell those papers at a loss."

The future of BSkyB has been thrown wide open since Mr Murdoch dropped his planned bid to take full ownership of the UK satellite broadcaster.

The firm has become a mature, cash-generating business, with profits of £917m in the 12 months to March this year.

If all goes well for the media tycoon, he might just be able to revive the bid in a year or two, though BSkyB's share price suggests markets see no immediate prospect.

"News Corp has an enormous understanding of the business," says Ms Wise. "The Murdoch family are very long-term players. They have a reputation for coming back... They are consummate deal-makers."

But things may well get worse for News Corp.

If police bring criminal charges against News Corp management in the coming months, regulator Ofcom could deem the conglomerate no longer to be a "fit and proper person" to hold a UK broadcasting licence.

In that case, Mr Murdoch's firm may be forced to give up all control over a company he co-founded and in which he retains a 39% stake.

UK investigations

News Corp now faces formal scrutiny in the UK at three levels.

A parliamentary select committee has summonsed Rebekah Brooks, as well as Rupert Murdoch himself and his son James, to give testimony under threat of perjury.

All three have now agreed to appear.

The worst News Corp can expect from the hearings is public humiliation.

A renewed police investigation into phone hacking and alleged payments to police officers, may result in criminal charges in the autumn against more employees of NoW.

More worryingly, the investigation could spread beyond NoW to other papers owned by the group.

But the biggest challenge to News Corp may come from the public inquiry headed by Lord Justice Leveson.

It could result in a major tightening up of the rules that govern the behaviour, ownership and regulation of the media in the UK.

In particular, the government may legislate to limit a company's share across all media, according to analyst Claire Enders - something that could hurt News Corp in particular.

An even bigger threat to News Corp could be looming across the Atlantic, where the hacking scandal has become big news.

Senior US Congressmen from both parties have called for two sets of criminal inquiries:

1. for the FBI to investigate whether US citizens were victims of phone hacking by NoW, in breach of wiretap laws
2. for the Justice Department to decide whether alleged payments to British police could mean that News Corp itself - as a US company - broke anti-corruption laws.

The big question is whether the investigations translate into a threat to News Corp's US broadcasting licence, as it has done in the UK, according to analyst Alan Gould of US investment firm Evermore Partners.

About a third of News Corp's revenues come from US television.

"The US television business is of big and growing profitability for the company," he says, unlike its loss-making US newspapers.

Meanwhile, the Australian prime minister Julia Gillard is mulling whether to open her own inquiry into media regulation and ownership.

The boss of News Corp subsidiary News Limited, which runs more than 20 papers and websites in the country has already opened an internal investigation to uncover any misconduct.

The hacking scandal has already claimed several scalps, including that of Andy Coulson twice - first as NoW editor in 2007, then as communications director to the prime minister, David Cameron, this year.

Rupert Murdoch was accused ofaxing NoW in order to save Mrs Brooks

Also gone is Rebekah Brooks, who was NoW editor when the company allegedly hacked the voicemail of teenage murder victim Milly Dowler.

Much of Mr Murdoch's manoeuvring during the hacking scandal has been interpreted as an attempt to protect her.

Indeed, after he chose to close down the 168-year-old tabloid, staff accused him of sacrificing the red-top in order to save Mrs Brooks.

Even the position of Mr Murdoch's son and heir apparent, James, may be at risk, with calls led by shareholder advisory group PIRC, for him to be replaced as chairman of BSkyB.

"We live in a culture in which people at the top, whether guilty or not, carry the can," says Claire Enders.

Senior management could now find themselves in a double-bind, seen as either culpable for covering the scandal up, or incompetent for not tackling it much earlier.

Change at the top

Mr Murdoch is now 80 years old.

If his son James is seen as gaining control of the situation, Mr Murdoch could finally make way for him.

However, there are now moves afoot to curtail the Murdoch family's control over their firm.

A group of News Corp shareholders are suing News Corp executives, accusing them of nepotism for overpaying when they bought Shine Group, a British TV production firm, from Rupert Murdoch's daughter Elisabeth.

The American investors have expanded their lawsuit in light of the NoW scandal, to accuse News Corp's board of providing "no effective review or oversight" and permitting a "culture run amok".

According to stock analyst Alan Gould, many outside shareholders - who collectively own 62% of News Corp - would like to see more power transferred from the family to News Corp's president Chase Carey.

But unlike the ouster of Tony Hayward at BP, shareholders at News Corp do not traditionally have the final say.

"There is no precedent here," says media analyst Claire Enders. "Shareholders in the US have no clue what to do if Murdoch is seen as damaging the company."