With no end to the scandal in sight, he had to go

Andrew Grice on the dramatic day that ended with the darling of the right falling on his sword

The Liam Fox drama was always going to end in his resignation, but the last act closed more quickly than expected.

Early yesterday afternoon, the mood in Downing Street was calm. Officials fully expected the Defence Secretary to be at David Cameron's side tomorrow at a ceremony in Wootton Bassett. They believed that Mr Fox's fate would be decided early next week after Sir Gus O'Donnell, the Cabinet Secretary, delivered his inquiry report on the shadowy role played by Adam Werritty, the former Defence Secretary's friend and self-appointed "adviser".

Directly across Whitehall at the Ministry of Defence (MoD), the mood was very different. Officials were scrambling to find the answers to another pile of damaging allegations to be published by tomorrow's newspapers. "There was no end in sight," one Fox aide admitted last night.

Mr Fox, a fighter by instinct, judged it would do the Government more damage if he tried to hang on to his job. Appearing with the Prime Minister at Wootton Bassett in the full glare of the cameras after another crop of terrible headlines would embarrass Mr Cameron. Mr Fox knew the latest allegations would spill over into Monday's papers.

So he telephoned Mr Cameron, who was in his Witney constituency, to tell him it was right to resign now. The fox jumped, knowing he would almost certainly be pushed next week.

It suited Mr Cameron and Mr Fox for the play to end this way. The Prime Minister decided not to throw his Defence Secretary to the media wolves early this week. It was good party management, even if it ensured several days of bad headlines. He knew that a sacked Mr Fox could eventually become a dangerous focus of right-wing opposition on the Tory back benches, where a sizeable group of MPs object to the Cameron modernising project and feel that too many concessions are being made to the Liberal Democrats.

Mr Cameron may regard Tony Blair as "the master" but that means learning from his mistakes and his successes. Mr Blair would admit that Cabinet ins and outs were not one of his strongest suits. Breaking with his original intentions, he did not keep key ministers in their departments for long enough.

Even before Mr Fox resigned, Britain had had five Defence Secretaries in the past six years. Mr Blair's too frequent reshuffles were often botched. He sacked Peter Mandelson (second time around) without waiting for the results of an inquiry that later cleared him.

So Mr Cameron has won brownie points with his right-wing backbenchers. Even those who wanted Mr Fox to survive won't blame the Prime Minister. Nor will Mr Fox, who is less likely to become a sulky, potentially divisive ringleader on the backbenches. Mr Fox's negotiating tactics during last year's wholesale defence review angered Mr Cameron and George Osborne. They suspected he had a hand in some of the leaks from the MoD, although this was never proven. On Libya, Mr Fox initially echoed – in private – the doubts of service chiefs about a no-fly zone. But once the decision was taken, he became a strong advocate of Mr Cameron's cause. He won the respect of both the Prime Minister and the Chancellor for the way he began to fill the "black hole" in the MoD budget, not least by implementing his plans to cull what he regarded as an army of pen-pushers.

Can the irrepressible Mr Fox bounce back? It is too early to answer, but right-wing Tories are already asking the question. In the short term, he will be a diminished figure. But fellow Thatcherites hope he can have "a big future" and the manner of yesterday's departure may make that more likely. However, a big shadow will remain over his judgement in allowing his friend to drive a tank through the ministerial code, designed to prevent a conflict of interest between ministers' public and private roles. One lesson to be learnt from this bizarre drama is that the code should be tightened to cover the friends of ministers. At present, it includes only spouses or partners and close family.

The other lesson is that lax behaviour might be acceptable in opposition, but never in government. Mr Fox was not the victim of a media witch-hunt. He engineered his own downfall.

The Letter of Resignation

Dear David,

As you know, I have always placed a great deal of importance on accountability and responsibility. As I said in the House of Commons on Monday, I mistakenly allowed the distinction between my personal interest and my Government activities to become blurred. The consequences of this have become clearer in recent days. I am very sorry for this. I have also repeatedly said that the national interest must always come before personal interest. I now have to hold myself to my own standard. I have therefore decided, with great sadness, to resign from my post as Secretary of State for Defence – a position which I have been immensely proud and honoured to have held. I am particularly proud to have overseen the long overdue reforms to the Ministry of Defence and to our armed forces, which will shape them to meet the challenges of the future and keep this country safe. I am proud also to have played a part in helping to liberate the people of Libya, and I regret that I will not see through to its conclusion Britain's role in Afghanistan, where so much progress has been made. Above all, I am honoured and humbled to have worked with the superb men and women in our armed forces. Their bravery, dedication and professionalism are second to none. I appreciate all the support you have given me – and will continue to support the vital work of this Government, above all in controlling the enormous budget deficit we inherited, which is a threat not just to this country's economic prosperity but also to its national security. I look forward to continuing to represent my constituents in North Somerset.

Yours ever,

Liam Fox

The Reply

Dear Liam,

Thank you for your letter.

I understand your reasons for deciding to resign as Defence Secretary, although I am very sorry to see you go. We have worked closely for these last six years, and you have been a key member of my team throughout that time.

You have done a superb job in the 17 months since the election, and as shadow Defence Secretary before that. You have overseen fundamental changes in the Ministry of Defence and in our armed forces, which will ensure that they are fully equipped to meet the challenges of the modern era. On Libya, you played a key role in the campaign to stop people being massacred by the Gaddafi regime and instead win their freedom. You can be proud of the difference you have made in your time in office, and in helping our party to return to Government.

I appreciate your commitment to the work of this Government, particularly highlighting the need to tackle the deficit, and the relationship between Britain's economic strength and our national security. You and Jesme [Baird, Fox's wife] have always been good friends, and I have truly valued your support over the years. I will continue to do so in the future.

Yours ever,

David Cameron