Phone Hacking Scandal:

Hacking: Stephenson quits, Brooks arrested

Scandal takes dramatic new turn as Met Police chief bows to pressure and ex-News International boss is questioned

The phone-hacking scandal claimed its highest-profile victim yet when Sir Paul Stephenson, Britain's most senior police officer, resigned as Commissioner of the Metropolitan Police last night, saying the row over his links to a former News of the World executive harmed his ability to do his job.

Sir Paul stepped down amid a political outcry at Scotland Yard's disclosure that it had paid Neil Wallis, the former deputy editor of the NOTW, as a public-relations adviser when his force was being criticised for its failure to re-open its investigation into alleged criminality at News International.

Taking a swipe at unnamed newspaper executives who he said had kept quiet about phone hacking, the Commissioner insisted he had no grounds for suspecting Mr Wallis was involved in the saga when he was employed by the Yard between October 2009 and September last year. Mr Wallis was arrested last week on suspicion of conspiring to access voicemails.

The 57-year-old career officer said he was leaving his £270,000-a-year job with "my integrity intact" but added he recognised that his links to Mr Wallis, whom he had met eight times for private dinners between 2006 and 2009, risked hampering the Yard's ongoing inquiry to establish the extent of phone hacking at the defunct Sunday newspaper. In a televised statement at Scotland Yard, Sir Paul said: "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.

"I had no knowledge of this disgraceful practice and the repugnant nature of the selection of victims that is now emerging, nor of its apparent reach into senior levels."

The shock announcement came on the most extraordinary day so far in two weeks of constant revelations. Other developments yesterday included:

* Former NI chief executive Rebekah Brooks was arrested at a London police station on suspicion of conspiring to intercept voicemails and involvement in corrupt payments to police.

* The Serious Fraud Office has been asked to investigate whether NI breached company law when it paid to settle lawsuits in the aftermath of the original 2005-06 police inquiry.

* Deputy Prime Minister Nick Clegg called for "proper plurality" in the British media, echoing a demand from Labour leader Ed Miliband for Mr Murdoch's British media interests to be broken up.

Sir Paul, who had earlier sought to brush aside revelations in the Murdoch-owned Sunday Times that he accepted hospitality worth £12,000 from a health farm for which Mr Wallis was a PR consultant, said he recognised earlier disclosure of the Yard's decision to employ the former NI executive might have been "desirable".

The Independent can reveal that Sir Paul was aware of the problems that Mr Wallis's suspected involvement in phone hacking might present at least three months ago. Documents obtained by this newspaper show that in May this year the Commissioner requested a file detailing the process which led to Chamy Media, a PR company wholly owned by Mr Wallis, being awarded the first of two six-month contracts worth a total of £24,000.

The file was passed to Tim Godwin, Sir Paul's deputy and the man who will take over his role while the search for a new commissioner begins, to perform "due diligence" on 1 June this year. Last night, it was unclear why the Yard chose to keep this information secret until after Mr Wallis's arrest had been confirmed last Thursday afternoon.

The force said last week that its arrangement with Mr Wallis, who provided PR advice to Sir Paul's office and that of John Yates, the Assistant Commissioner who was criticised for his decision not to re-open the hacking inquiry in July 2009, had ended by "mutual consent". But The Independent can reveal that "a third and final" six-month contract was offered to Mr Wallis on 1 September last year, meaning that he would have been working with the highest echelons of the Yard when the decision was taken in January last year to launch Operation Weeting following the disclosure of new emails by NI.

Mr Wallis sent an email to the Yard declining the new contract on 6 September last year, shortly after an article in The New York Times was published suggesting that knowledge of phone hacking went beyond a single "rogue reporter".

The revelation that Mr Wallis had been employed by the Yard added fuel to the longstanding controversy of the close relationship between senior officers and NOTW executives. Sir Paul last week said there was nothing untoward about his relationship with Mr Wallis after it was revealed the two men dined or met together nine times between 2006 and 2009, including one meal during the original phone-hacking investigation. They have also met privately five times in the last two years.

Mr Yates, who has faced repeated calls for his resignation over the phone-hacking scandal, has known Mr Wallis for 12 years and met him socially as recently as this March. The Yard said meetings with senior newspaper executives were routine and a necessary part of police work.

Sir Paul said that he had decided not to reveal details of Mr Wallis's employment to David Cameron last week to maintain the integrity of Weeting and to ensure the Prime Minister was not compromised. But he criticised unnamed newspaper executives and those "beyond" who, he said, knew about hacking but kept quiet.

Last night Mr Cameron said he understood Sir Paul's decision and that the investigation into phone hacking and alleged police corruption would proceed "with all the necessary leadership and resources".

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