Rupert Murdoch's retreat from the "three monkeys" defence of his newspapers' illegal eavesdropping has been long drawn out. Senior managers at News International, publishers of the News of the World, The Sun, The Sunday Times and The Times, saw no evil, heard no evil and therefore said nothing about the evils of telephone hacking. When they carried out "thorough" internal investigations, they found no evil beyond one rogue reporter. And, no, your honour, they couldn't find any emails. Not until Mr Justice Vos recently lost his patience did they say: "Oh, you mean look on the server? Goodness gracious, well, aren't these IT people clever?"

It was never convincing that the resort to illegal methods was a freelance operation by a few bad apples, about which editors and managers who signed large cheques were ignorant. Now News International has admitted that much of its defence over the past five years was hokum, and has set aside £20m to settle out of court with a group of famous people who claim their privacy has been violated.

This is a welcome if belated admission, although it is by no means the last stand. At each stage, News International has turned and tried to make a stand. At each stage, it has been forced to admit that previous denials were inoperative.

Before the retreat resumes, however, we should be clear about what was wrong and what more needs to be done to put it right. But first we have an interest to declare. Although News International is not alone in using such methods, this newspaper has never hacked into people's voicemails, and nor has our sister title, The Independent.

There may be occasions when subterfuge is justified. If a journalist has evidence that a crime has been committed or information is being withheld from the public against its interest, and there is no other way of substantiating the story, then a case can be made.

What are plainly unjustified and illegal, however, are fishing expeditions by which journalists listen in to the voicemails of celebrities in the hope of picking up gossip or details of the movements of their prey. That is completely different from having evidence that gives rise to a reasonable suspicion that information is being withheld against the public interest, and then using covert methods to prove or disprove that supposition.

Equally, it is worth recalling that the British press is probably the most vigorous and entertaining in the world. Much of the output of News International titles is of enviably high quality. And in many cases it is hard to summon much sympathy for celebrities who have used the media, or employed consultants to do so, for their own ends.

But this scandal is not just about movie stars, royalty and politicians. As Alastair Campbell, Tony Blair's head of communications, has pointed out, junior staff have lost their jobs when they have been wrongly accused by targeted employers of leaking to the papers. As we confirm today, the telephones of the families of the two girls murdered in Soham have been hacked. This is unacceptable, and one of the first stops on the next leg of the Murdoch family's retreat ought to be to compensate the large numbers of people who are not famous, or have not chosen to be well known, whose privacy has been violated.

Then News International – and other newspaper groups – need to come clean about who knew what and why it will not happen again. Beyond that, there remain some uncomfortable questions for the Government in general and the Prime Minister in particular. David Cameron has dispensed with the services of Andy Coulson, the editor who left the NoW when the scandal broke, but remains vulnerable over his closeness to Rebekah Brooks, Mr Coulson's predecessor, now in charge of the Murdoch empire's damage limitation exercise. It has been alleged that Mr Cameron and Ms Brooks have been riding together. No 10 has been evasive about a dinner over Christmas at which Ms Brooks entertained the Prime Minister and James Murdoch at her Oxfordshire home. Mr Cameron almost seems to be suggesting that the secrecy shrouding the dinner is part of his right to respect for his private and family life under Article 8 of the European Convention. We disagree.

Such evasion makes it harder for the Government to be seen as an impartial broker of the buyout of the minority shareholders in Sky and the divestment of Sky News.

Both Mr Cameron and Mr Murdoch should remember the old Watergate rule, that the cover-up is often more of a problem than the original crime. Full disclosure is the only sensible option.