David Cameron was forced to explain on Friday why No 10 ignored a warning before the general election that his communications chief, Andy Coulson, had employed a freelance private detective with a long track record of corruption who was at the time facing a murder charge.
The Guardian disclosed that it had passed to a senior Cameron aide information about the News of the World's links to the detective, Jonathan Rees, which could not at the time be reported because Rees was awaiting trial for an axe murder. The trial later collapsed. Alan Rusbridger, editor of the Guardian, said the paper contacted all three party leaders before the 2010 election to make them aware of unpublished details surrounding the allegations of Coulson's involvement in illegal information gathering.
During a February 2010 telephone conversation, Guardian deputy editor Ian Katz told Steve Hilton, No 10's director of strategy and one of the prime minister's closest advisers, that under Coulson's editorship the News of the World rehired Rees after he had served a seven-year sentence for conspiring to frame a woman for possession of cocaine.
Hilton was told that Coulson could not have been unaware of Rees's track record of obtaining material illegally through corrupt police officers and other methods because they had been the subject of two prominent articles in the Guardian in 2002.
These details could not be reported at the time because of the risk of prejudicing Rees's upcoming trial.
The Guardian had by then published a series of exposés about phone hacking at the News of the World during Coulson's editorship.
It is understood that Hilton regarded the information as sufficiently serious to report the conversation to Ed Llewellyn, Cameron's chief of staff and the official in charge of ethics. But it appears that no further action was taken and three months later Coulson was appointed as the prime minister's director of communications.
At a Downing Street press conference, Cameron's judgment came under repeated challenge as he was asked to explain why he had taken Coulson into Downing Street after the general election despite strong reports suggesting Coulson had overseen, or tolerated, a culture of hacking while editor of the News of the World.
In the most difficult press conference of his premiership, Cameron said he had been given no "actionable information", and said he accepted Coulson's assurances that he knew nothing of phone hacking during his editorship between 2003 and 2007.
Coulson was arrested by appointment on Friday morning and, during daylong questioning at a south London police station, protested his innocence. He was released on police bail after nine hours to return in October. He is facing potential charges under the Prevention of Corruption Act.
Admitting he will be personally judged for his decision to hire Coulson, Cameron said: "I decided to give him a second chance but the second chance didn't work. The decision to hire him was mine and mine alone."
No 10 acknowledged that Hilton was warned by Katz that Coulson had rehired Rees as a private detective, but claims that Hilton was only passed information that appeared in the paper.
However, the Guardian said Hilton was told facts that it had been unable to publish owing to ongoing legal proceedings. These included Rees's name, the fact that he was awaiting trial for a murder, the fact that he had been jailed for seven years for conspiring to frame a woman by placing cocaine in her car – after which he had been rehired by Coulson's News of the World – and the fact that Rees's illegal activities on behalf of the News of the World had been prominently reported in the Guardian before he was rehired under Coulson.
The Guardian said: "The thrust of the conversation was that Rees was a murder suspect who had been involved in massive corruption on behalf of the News of the World of which Coulson could not have been unaware."
Downing Street said Rees had not just been hired by News of the World, but also by the Daily Mirror and the BBC's Panorama. The Guardian said: "There was no suggestion that Rees ever had any connection with Panorama until March 2011, many months after No 10 was told the details of the Rees case."
No 10 also acknowledged that Rusbridger met Hilton on 12 November 2009 and also warned him about Coulson's links to widescale phone hacking. Downing Street said Rusbridger provided no new evidence.
www.guardian.co.uk/politics/2011/jul/08/david-cameron-decision-andy-coulson