Cameron faces storm over BSkyB ruling and the company he keeps

Prime Minister criticised for hiring Coulson and befriending Brooks

(Reuters)

A toxic combination of problems is building up for David Cameron in the wake of the phone hacking scandal and the closure of the News of the World.

The announcement does nothing to ease the pressure on the Prime Minister on a series of fronts. He is looking to answer charges that hiring Andy Coulson as his director of communications was a disastrous error of judgement and that he remains too close to Rebekah Brooks, News International's embattled chief executive.

The Government is braced for a storm over News Corporation's bid to assume control of BSkyB, admitting it has limited options to do anything other than delay the takeover. And Downing Street faces a logistical nightmare in setting up the two public inquiries Mr Cameron promised after claims that the NOTW hacked into the phone of murdered schoolgirl Milly Dowler.

Ms Brooks' continuing presence at the helm of News International is a problem for Mr Cameron. The two were close, socially as well as professionally. They both have houses in west Oxfordshire and have ridden and dined together. They were most recently seen side-by-side at Rupert Murdoch's summer party in London two weeks ago.

But his association with Ms Brooks is now politically damaging for the Prime Minister. "I don't think any events have been cancelled but I don't think there were any events in the diary," said a Downing Street source. "As far as I know there isn't going to be anything arranged."

What is arranged, for now at least, is News International's traditional party at the Conservative Party Conference at the start of October. Normally Mr Cameron would put in an appearance. This time he may find another pressing engagement.

Downing Street is already distancing itself from Mr Coulson, pointing out he left the Prime Minister's side nearly six months ago. Whitehall sources admit they face "huge flak" over News Corp's planned takeover of BSkyB.

Consultation over the move closes today, with the final decision passing to the Culture Secretary, Jeremy Hunt. He faces calls from across the political spectrum to block or at least delay the takeover, but sources close to him insist his room for manoeuvre is limited as he can only halt the takeover if it threatens media plurality.

Yesterday, Downing Street stressed that Mr Cameron wanted "urgent" progress on his two promised inquiries into the failure of the police to investigate phone hacking adequately, and to address the wider questions of media ethics.

Sir Gus O'Donnell, the Cabinet Secretary, will this weekend submit proposals for the terms of the inquiries. Mr Cameron will meet Ed Miliband, the Labour leader, on Wednesday for discussions, hoping to demonstrate progress on the inquiries before the Commons rises for its summer break.

Ministers are intent on locking Labour into the process, with one source explaining: "This isn't the Government versus the opposition – it was all happening when Labour was in power."