"This was the week we lost the next election," said a senior Tory gloatingly to me last Thursday. Admittedly, he is a senior Tory who has never much liked David Cameron, which explains (a) why he was gloating and (b) why he was probably exaggerating. But it's fair to say that politics is in greater flux than it has been since the last election. And the party leader who has most to lose is Cameron.
Sir Paul Stephenson's resignation doesn't affect him as much as Rebekah Brooks' arrest. "I'm not going to pretend it's not bad," said a close Cameron ally to me yesterday. "It's the tarnishing moment. Not as bad as Westland but worse than Ecclestone." During the Westland crisis, Margaret Thatcher was hours away from resigning. When Tony Blair was caught accepting a £1m donation from Formula One's Bernie Ecclestone and then arguing for Formula One to be exempt from the tobacco advertising ban, there was no question of resignation, but it wrecked his early reputation for being straight with voters.
Cameron has looked defensive and rattled over the past 10 days. At each stage, Ed Miliband has made the running and the Prime Minister has been forced to trot along behind to catch up. That's an extraordinary position for a Leader of the Opposition to be in. Normally, opposition leaders can't shape events, but can only respond to them. Yet Miliband has managed to achieve a judicial inquiry, Rebekah Brooks' resignation, and the dropping of News Corp's bid. All in just over a week.
Cameron was already in trouble over the hiring of Andy Coulson as his communications director. Says a former member of his Shadow Cabinet, "I'm baffled as to why David Cameron appointed him in the first place. And I'm baffled as to why he took him into government. It was a massive error of judgment."
Cameron knew the risks but still judged them to be worth taking. Soon after the appointment, the Conservative leader explained himself at an internal party meeting, saying, "Andy Coulson's the man who invented the line 'hug a hoodie'. If he can do that much damage to me, think how much damage he can do to the Labour Party!"
Now think how much damage Coulson might yet do to the Prime Minister if he ends up being convicted of perjury or corrupting the police. Did Cameron ever get to hear the warnings about Coulson passed on by Alan Rusbridger, the editor of The Guardian, and others? It's possible that he didn't. They were given to Steve Hilton, Cameron's director of strategy, who was involved in such a bitter feud with Coulson that the two men hadn't spoken for months and Hilton was refusing to go to meetings at which Coulson was present. So you can imagine what sort of reception Hilton would have got from Cameron's chief of staff, Ed Llewellyn, when he looked as if he were trying to dish the dirt on an old enemy. Llewellyn was more likely to dismiss the claims as bile than write a serious note to his boss about them.
All the same, there was enough in the public domain about Coulson's time as editor of The News of the World for Cameron to have had second thoughts about giving him a second chance. Now the Prime Minister is going to be dogged by that relationship for years to come. Between now and the next election, there will be prosecutions of police officers, who will blab about their relationships with journalists. Then it will be the journalists' turn in the dock, possibly for crimes more serious even than phone hacking. After that, there will be an open public inquiry with reporters, editors, policemen and politicians giving evidence under oath – much of which will be as embarrassing to Cameron as the Chilcot Inquiry was to Blair. Accompanying all of this will be endless photos of Cameron with Coulson, various Murdochs and Rebekah Brooks.
Now that she has been arrested, the Prime Minister's cosy relationship with the former News International chief executive has become all the more embarrassing. That he should have brought her into his weekend social life as well as his professional life – even when his Government was making huge commercial decisions about her company – looks very bad. And some voters, who already suspect he is too privileged, too elitist, too concerned with his rich and powerful friends, will only have their prejudices confirmed.
News Corp's tentacles spread more broadly through the Conservative Party. Take John Whittingdale, chairman of the Culture, Media and Sport Select Committee, who is due to interrogate the Murdochs tomorrow. As politicians go, he is likeable and engaging, but he is hardly impartial on this subject. Back in 1996, he voted against his own government by supporting an amendment that would have allowed a publisher with more than 20 per cent of the national newspaper market to buy an ITV company. He must have thought News International's interests were more important than his job as a PPS, from which he was forced to resign for this rebellion. More recently, when his select committee was conducting an inquiry into the BBC, guess who Whittingdale appointed as the committee's specialist advisor? None other than Ray Gallagher, former director of public affairs and senior advisor at BSkyB, and a sworn enemy of the BBC.
The only party that comes out unequivocally well from this scandal is the Liberal Democrats. They opposed the power of News International when it was a brave thing to do. Labour has been only a recent convert. On the last day of coalition negotiations after the general election, a desperate Gordon Brown offered Nick Clegg a Royal Commission on the future of the media. But it was too late.
Still, Miliband's personal ratings have leapt up since he took on Murdoch. His Shadow Cabinet, which had been rather ignoring him, is full of admiration. He now has a chance to capitalise on his new-found authority. Today, he is giving another speech on responsibility, in which he will link bankers, politicians and journalists as powerful vested interests that have acted irresponsibly. He could take that further by challenging another powerful vested interest: the trade unions. At this year's party conference, he'd do well to propose a rewriting of party rules so that unions have less say over the election of the leader and the policy of the party. He needs to show that he is not in their pocket.
Conservatives are secretly quite pleased that Miliband's position has been cemented, as they think he will be easy to beat at a general election. They may still be right. But this scandal – which will run for years – is much better news for Labour and the Lib Dems than it is for the Tories. One veteran Labour politician has been saying, with as much hyperbole as the Conservative at the beginning of this column: "There were three things I never thought I'd live to see: the fall of the Soviet empire, the end of white rule in South Africa and the collapse of Rupert Murdoch's power."
If he were a TV darts commentator, he'd be shouting: "ONE HUNDRED AND EIGHTY!"