The disclosure that an investigator working for the News of the World may have hacked the mobile phone of murdered schoolgirl Milly Dowler has intensified the political crisis surrounding the hacking scandal.

The police knew the phone was being hacked, but did not investigate. The police have also admitted that some officers received payment from journalists for information. An emergency debate was held in the House of Commons yesterday, and Prime Minister David Cameron has been forced to call a public inquiry into the phone hacking.

Dowler’s voicemail was hacked sometime after her disappearance in March 2002. An investigator from the NoW is alleged to have hacked messages from anxious relatives, deleting some to make space in the mailbox. Dowler was already dead by this time, and this encouraged the family’s hopes that she would be found alive.

The list of alleged targets of the NoW’s phone hacking has now widened considerably. Alongside politicians, it includes some families of those killed in the London bombings on July 7, 2005, and the family of Madeleine McCann, who disappeared in 2007.

Three months ago News International offered a limited admission of liability for hacking during the period 2003-2006, but these latest revelations considerably widen that time frame.

Other targets reportedly included the families of Holly Wells and Jessica Chapman, two schoolgirls murdered in Soham in 2002, and a phone connected to schoolgirl Danielle Jones, who was murdered in 2001. Colin Stagg has also been advised that he was a target of hacking in 2000. Stagg was acquitted of the 1992 murder of Rachel Nickell in 1994, and awarded £700,000 compensation for wrongful arrest.

For all the expressions of outrage by politicians in all the major parties, and claims of the media being out of control, these developments have laid bare the real relations between Rupert Murdoch’s News Corporation, its British subsidiary News International, the police and the political class. The picture painted is of politicians dependent on the support of Murdoch’s empire and other vast media corporations, while these corporations operate with a certain legal impunity thanks to their intimate relations with government and the police.

For the Labour Party, Ed Miliband has called for News International’s chief executive Rebekah Brooks (née Wade), formerly editor of the NoW and sister paper, The Sun, to “reconsider her position”. Yet Labour prided itself on having secured the support of the Murdoch press, including The Sun, the NoW and The Times, in order to win office in 1997. Former Prime Minister Tony Blair did nothing significant without first consulting with Murdoch’s people, and he and wife Cherie attended many social gatherings alongside Brooks/Wade.

Cameron has called the practices allegedly carried out by the NoW “absolutely disgusting”, but Brooks’s successor at the NoW from 2003 to 2007, Andy Coulson, was appointed by Cameron as his communications director, despite having been forced to resign at the NoW due to earlier revelations of phone hacking.

The government is even now considering a bid by News Corporation for a majority takeover of BSkyB. As he announced a public inquiry into the hacking scandal, Cameron told parliament that the BSKyB takeover will go ahead regardless. Asked if the News Corporation should pull its bid, a Downing Street spokeswoman said, “That’s a matter for Rupert Murdoch”.

Metropolitan Police Commissioner Sir Paul Stephenson yesterday acknowledged, on the basis of information received three weeks ago from News International, that “a small number of MPS officers” had allegedly received “inappropriate payments”. Brooks had admitted this to MPs in 2003. News International subsequently issued a denial, and Brooks claimed she was speaking generally, not about her own paper.

The phone hacking scandal initially centred on intrusion into the private lives of celebrities. The practice first came to light in 2006 with stories about members of the royal family. The following year the NoW’s royal editor, Clive Goodman, and a private investigator, Glenn Mulcaire, were jailed for illegally accessing Royal mobile phone messages. Mulcaire is now accused of hacking Milly Dowler’s phone. The director of Public Prosecutions at the time of the convictions, Ken MacDonald QC, has been taken on as part of News International’s legal team.

Coulson resigned, but denied any wider phone hacking had taken place. In subsequent court evidence, Mulcaire said he had been asked to hack voicemails by Ian Edmondson, the NoW’s assistant editor (news) under Coulson. Coulson resigned as Cameron’s aide on January 21 this year. The prime minister defended Coulson to the hilt, saying he had been “punished twice for the same offence”.

Although Mulcaire had details of 91 phone PIN codes and nearly 3,000 phone numbers at his home, the Metropolitan Police in 2007 somehow managed to identify only “8 to 12” possible victims. Andy Hayman, who led that inquiry, later resigned from the police to write a column for the Times, another News International title.

When the Guardian, from 2009, published extensive further details of the hacking, the Metropolitan Police concluded that this constituted no new evidence for investigation. An investigation by the Press Complaints Commission (PCC) accepted the line put forward by News International. Lady Buscombe, chair of the PCC, has now said she thinks the NoW was “lying” then.

Evidence continued to mount, directly implicating senior figures within News International. The Metropolitan Police confronted a rising wave of civil litigation by celebrities over matters they had refused to investigate in 2006. They also faced a judicial review of that earlier investigation. In response, they launched Operation Weeting in January this year. Five journalists have been arrested since April.

News International offered a limited admission of liability for the period 2004-2006, and certain out-of-court settlements with celebrity victims as a means of drawing the sting of the allegations. In part this was to shield Brooks, NoW editor between 2000 and 2003. Labour MP Chris Bryant, who was responsible for forcing the emergency debate, spoke of pressure from News International not to investigate Brooks or use parliamentary privilege to raise these matters.

Paul McMullan, a former NoW journalist, told the BBC that phones were hacked while Brooks was editor. Asked if she knew about this, McMullan said, “Of course”. Channel 4 News this week reported that Brooks was approached by police in 2002 over Mulcaire’s targeting of the senior detective investigating the murder of Daniel Morgan. News International was unable to confirm or deny this. Referring to this meeting, Tom Watson MP told Parliament, “News International were paying people to interfere with police officers and were doing so on behalf of known criminals”.

The chief suspect for Morgan’s murder was Jonathan Rees, a private investigator who worked for the NoW from 1993 to 2000, when he was convicted of perverting the course of justice. The collapse this year of his trial for Morgan’s murder revealed widespread police corruption. According to a police report, Rees was for many years “involved in the long-term penetration of police intelligence sources”. He was re-employed at the NoW by Coulson in 2005, and his record was made known to Cameron before Coulson joined Number 10.

In the event, most of the coalition front bench abstained from the vote on the emergency debate.

The Labour Party, it must be noted, relied on Murdoch’s influence even while Murdoch-owned corporations were apparently hacking the phones of cabinet ministers. David Blunkett suspects phone hacking informed publication of details of his private life. He pursued no legal action, but began writing a column in Murdoch’s Sun newspaper.

On April 10 the Guardian reported that Sir Gus O’Donnell, the cabinet secretary, had blocked an attempt by then Prime Minister Gordon Brown to hold a judicial inquiry into allegations of hacking by the NoW, with targets including himself and Peter Mandelson. “O’Donnell told Brown, who lost the support of the News of the World and its sister paper, the Sun, in the autumn of 2009, that it would be inappropriate to hold a judicial inquiry so soon before the election”, the newspaper stated.

News International is still pushing the line that Mulcaire was a lone figure working as a “rogue operator”. At the same time, the company has provided the police with emails alleged to show that Coulson, while editor of the NoW, condoned payments to police officers. The Guardian report that News International is likely to claim Brooks was on holiday during the periods when Milly Dowler’s phone and those belonging to the Soham families were hacked. Coulson, her deputy at the time, would thus be responsible in those cases.

News International is attempting to limit the commercial impact of these revelations, with the NoW losing advertising from high-profile clients such as Ford Motors, and News Corporation’s share prices falling. The attack on Coulson remains a high-risk defence, however. One journalist tweeted that “dumping on Coulson” was “Not wise. He knows where the bodies are buried”.