Final hours: At 10.30 came the fax that changed it all

'Telegraph' inquiries sparked the downfall of a minister who had quickly become a darling of the Tories

Kremlinologists retracing the final hours of David Laws's Cabinet career would perhaps read something into his failure to turn up at the BBC's Question Time studios on Thursday evening.

Mr Laws had been due to be the coalition's representative on the programme, but when Downing Street discovered that the Labour panellist would be Alastair Campbell, they pulled the Lib Dem Chief Secretary to the Treasury in protest.

Mr Campbell ridiculed the move by holding up a framed photograph of Mr Laws during the programme, claiming that he was "running scared".

However, there was nothing more to Mr Laws's absence than the high-mindedness of No 10 officials. On Thursday evening, the MP for Yeovil had been preparing for a quiet weekend in his constituency after earlier in the week unveiling £6.2bn of drastic cuts with the Tory Chancellor, George Osborne.

Shortly after 10.30am on Friday morning, however, on his 17th day in office, his world was turned upside down when a letter was faxed from the offices of The Daily Telegraph.

In terse language, the letter informed Mr Laws that the newspaper was aware of the arrangement he had with his partner, James Lundie, to pay rent, funded by the taxpayer, and in apparent breach of parliamentary rules.

Mr Laws's private secretary alerted the MP to the allegation, and before midday officials in both Downing Street and Deputy Prime Minister Nick Clegg's office in the Cabinet Office were informed.

David Cameron was en route to Leeds, where he was about to give a speech on the coalition's strategy for economic growth.

That afternoon, the Prime Minister held crisis talks by telephone with Mr Clegg, Mr Osborne and senior officials about what the next move should be. The allegation centred on whether Mr Laws had broken the rule, in place since 2006, forbidding expenses to be claimed for rent to a partner. Mr Laws's defence was that this was a grey area, but that by revealing his arrangement with Mr Lundie he would be effectively "outing" himself when he did not want to.

Mr Osborne, who has worked closely with Mr Laws during the coalition negotiations and during their short time together in the Treasury, in particular was closely involved in the talks. The Chancellor was very supportive of his new Lib Dem colleague.

By mid-afternoon on Friday, it was agreed with Mr Laws that he would refer himself to the Parliamentary Commissioner for Standards, John Lyon. He would repay the £40,000 he had claimed in total for rent paid to Mr Lundie, and issue a statement apologising. Despite The Daily Telegraph claiming to Mr Laws that it was not planning to reveal his homosexuality, only that he had paid an unnamed "partner", the MP decided it was time to be as open and as transparent as possible. A statement was issued to The Daily Telegraph revealing the thing he had spent three decades keeping a secret from his family and many friends: that he was gay. Mr Laws then began to inform those same family members and friends of what was about to happen.

By 7pm on Friday evening, word was beginning to leak out in Westminster that a "huge" story involving a high-profile member of the coalition was about to break. Two hours later, it was becoming clear that The Daily Telegraph had yet another expenses scoop – but this time with a twist, that Mr Laws had claimed rent for his gay lover.

Meetings involving senior Lib Dem and Tory officials at Downing Street went on late into Friday. Mr Cameron issued a statement on Friday evening saying he accepted that Mr Laws had referred himself to the authorities.

Mr Laws was, by now, at his country cottage in Chard, Somerset, speaking to close friends by telephone. One who spoke to the MP on Friday said he was "very low", and had effectively decided to resign by then. Friends and colleagues tried to persuade him to stay – that he could defend himself by insisting that he had only kept the rental arrangement secret because he did not want to be outed.

But as early as Friday, the discussions appeared to be in vain. "I didn't get any indication that he wanted to dig in and fight," said one friend.

Another said he was "emotionally shattered". "He was dealing with extremely painful issues which would have been painful if he had decided in a manner and at a time of his choosing, but were more painful because they were forced upon him by The Daily Telegraph."

Mr Laws, renowned for his political and tactical brain, was told to look at the situation in a "cold, hard political" sense – that he must remain in the national interest and slash the public debt. But the MP could only see the situation in a personal way and regarded it as a "life-changing decision". "He wanted to do what was right for Jamie, his family and his friends," said the ally.

Mr Laws told friends he would sleep on it before coming to any concrete decision. When they spoke to him again yesterday morning, and with the story the top item on the BBC news, his mind was made up. He did not turn up for his regular constituency surgery in Yeovil, and was not at his home in Chard.

Mr Laws spoke to Mr Clegg, Mr Osborne and Mr Cameron, agreeing that, while it was deeply regrettable and could leave the coalition in a precarious situation, he had to do the right thing.

Friends still tried to get him to change his mind but by midday it was decided among senior politicians that he would step down. Insiders spoke of a "tense" day, and Lib Dem and Tory officials worked closely over the situation .

Mr Laws returned to London from the South-west to face the music. His formal letter of resignation was received by Downing Street by 5pm. Mr Cameron faxed his response – full of glowing praise for Mr Laws and a promise that he would one day return to the Cabinet – at 5.20pm. Although it was by now clear he was resigning, there was then a delay in proceedings as Mr Cameron made clear that a replacement for one of the crucial jobs in government would have to be made as soon as the resignation was announced.

It wasn't until well after 7pm that Mr Laws arrived at the Treasury to make a statement, to a single TV camera, which was eventually broadcast before 8pm. Clearly drained and emotional, Mr Laws delivered his statement but did not take any questions before leaving the Treasury, to be among close friends.

The exchange of letters

Dear Prime Minister,

The last 24 hours have been very difficult and distressing for me, and I have been thinking carefully about what action I should take in the interests of the Government, my constituents and – most important of all – those whom I love. I am grateful for the strong support which I have received from my friends, family, and from you, the Deputy Prime Minister and the Chancellor. This support has been incredibly important, but nonetheless, I have decided that it is right to tender my resignation as Chief Secretary to the Treasury. I have done so for three reasons.

First, I do not see how I can carry on my crucial work on the Budget and Spending Review while I have to deal with the private and public implications of recent revelations.

At this important time, the Chancellor needs, in my own view, a Chief Secretary who is not distracted by personal troubles. I hardly need say how much I regret having to leave such vital work, which I feel all my life has prepared me for.

Second, while my recent problems were caused by my desire to keep my sexuality secret, the public is entitled to expect politicians to act with a sense of responsibility. I cannot now escape the conclusion that what I have done was in some way wrong, even though I did not gain any financial benefit from keeping my relationship secret in this way.

Finally, and most importantly, I have an overriding responsibility to those I love most, and who I feel I have exposed to scrutiny in this way. I have pursued a political career because of my sense of public duty, but I have too often put this before the interests of those I love most. It is time to redress the balance. I want to apologise to my constituents for falling below the standards that they are entitled to expect from me. The job of being a constituency MP is no less important to me than my cabinet responsibilities. I shall ensure that I co-operate fully with the Parliamentary Standards Commissioner in the review that I have requested. I intend to consider carefully over the period ahead how I can best serve the interests of my Yeovil constituency, which I care so passionately about.

It has been a great honour to serve however briefly in your Government and I will remain its strong supporter.

Yours sincerely, David Laws

Dear David,

Thank you for your letter tendering your resignation from the Government, which I accept with sadness.

The last 24 hours must have been extraordinarily difficult and painful for you. You are a good and honourable man. I am sure that, throughout, you have been motivated by wanting to protect your privacy rather than anything else. Your decision to resign from the Government demonstrates the importance you attach to your integrity.

In your short time at the Treasury, you have made a real difference, setting the Government on the right path to tackle the deficit which poses such a risk to our economy.

I hope that, in time, you will be able to serve again as I think it is absolutely clear that you have a huge amount to offer our country.

Yours, David [Cameron]