Andrew Grice: One of Cameron's greatest assets - the support of Rupert Murdoch – has become a threat to his survival

Inside Westminster

First, a confession. I was the matchmaker who arranged the first date between Rupert Murdoch's News International and New Labour.

While working for his Sunday Times in the late 1980s, I suggested that the paper's executives meet a rising Labour star they had barely heard of.

A dinner was arranged. We were all men in suits. To my horror, a fresh-faced Tony Blair bounced in wearing jeans. I felt my career hanging by a thread. Luckily for me, his hosts were soon eating out of his hands. It was love at first sight, the start of a relationship that culminated in The Sun coming out for Labour at the 1997 general election.

The love affair suited both Labour and the Murdoch empire. Labour avoided the brutal treatment meted out to Neil Kinnock when he was the party's leader, which was firmly programmed into the minds of Mr Blair, Gordon Brown and Peter Mandelson as they forged New Labour.

Mr Murdoch avoided the tougher cross-media regulation Labour once supported.

The end of the affair came in 2009, on the day the then Prime Minister Gordon Brown addressed Labour's pre-election conference. With mischievous and devastating timing, The Sun dumped Labour and endorsed David Cameron. As ever, the Murdoch camp was acting in its own commercial interest, which meant backing the winner. Supporting Mr Blair in 1997 was a no-brainer. Things didn't quite go according to plan last year but Mr Cameron scraped across the Downing Street finishing line.

Ever anxious to follow the Blair playbook, Mr Cameron courted the Murdoch papers in opposition. He recruited Andy Coulson, who had resigned as News of the World editor over the phone-hacking scandal, as his director of communications. He became friends with his Oxfordshire near-neighbour Rebekah Brooks, a Murdoch editor who rose to become News International's chief executive.

Despite reservations among some allies, Mr Cameron took Mr Coulson with him to No 10 last year. It is not a crime to stand by your friends but that decision now looks catastrophic. Mr Coulson was bound to become a target. He was very good at his job, and, even when he offered to resign last Christmas, Mr Cameron was reluctant to let him go. Other Cameron aides had regarded his departure as inevitable for months.

The Prime Minister's friendship with Ms Brooks led to another mistake this week. Despite the horrific revelations about the victims of hacking, he initially refused to endorse Ed Miliband's call for her to resign. The outcry over hacking forced a previously reluctant Mr Cameron to concede a public inquiry into the behaviour of newspapers and the Metropolitan Police, the minimum political requirement. That didn't quell the sense of panic in No 10, and he had to give more ground, calling yesterday's unscheduled press conference. He admitted mistakes had been made in currying favour with media moguls but argued that all the parties were in it together.

In a remarkable week, the relationship between politicians and press changed dramatically and probably permanently. MPs from all parties, often afraid of the Murdoch machine, queued up to attack it in a three-hour Commons debate. Mr Miliband's advisers urged him not to declare war on Mr Murdoch by calling for Ms Brooks' head. After the gruesome revelation that the murder victim Milly Dowler's phone was hacked, he overruled them at what his inner circle dubbed the "sod it" meeting on Tuesday.

In one bound, Mr Miliband, until recently fearing the Kinnock treatment, was free. The terms of trade had changed. He could risk the wrath of the Sun King, and knew he was on the same side as the public.

The luxury of opposition is not something Mr Miliband has enjoyed much in a difficult first nine months as Labour leader, but he exploited it well this week. It allowed him to call for the proposal by Mr Murdoch's News Corp to assume full control of BSkyB to be blocked. Legal constraints limited the Government's room for manoeuvre on the takeover but it looked weak and defensive. The timing was dreadful. The best ministers could do was to delay a decision until the autumn.

How quickly times have changed. The coveted links with the Murdoch camp have turned toxic. Labour seeks to rewrite history. Alastair Campbell, Mr Blair's director of communications, popped up on our TV screens this week to say The Sun's influence had been "over-stated" and that wooing the Murdoch papers was a smaller part of his job than people believed. Well, you could have fooled me. The same Mr Campbell once described his biggest achievement as persuading The Sun to back Labour in 1997.

This week's momentous events will have far-reaching implications for politicians, press and police alike. Hacking won't decide the next election but perceptions of the two prime ministerial candidates and the economy probably will.

Mr Miliband senses a chance to define himself against his opponent, and a divide with Mr Cameron trapped on the wrong side of the line.

Labour plans to contrast an Opposition leader addressing head-on the challenges facing the country without fear or favour, with a Prime Minister who appears full of fear, and favours his friends. It might just stick. Mr Cameron's allies say he is good in a crisis. He will need to be in this one. It is not over yet.