LONDON (Reuters) - "Let me declare my vested interests up front," Rupert Murdoch said in a 2010 speech praising Margaret Thatcher's years as Prime Minister. "I speak as more than an admirer of Margaret Thatcher. I speak as a person grateful for the opportunities this nation has given me -- and the opportunities she has created for every other individual in Britain."
Australian-born Murdoch did not mention the opportunities he has given Britain's politicians. It's become a rite of passage for leaders of Britain's main political parties to cozy up to Murdoch while in opposition, in the hope that his newspapers help them win power. Thatcher, Tony Blair and David Cameron all received the Murdoch stamp of approval before they took office.
But his sway over Britain's politicians, and their fear of his newspapers, can never be the same again. The phone-hacking scandal engulfing the News of the World has cost the tabloid's staff their jobs and could end Murdoch's plans to buy the chunk of satellite television group BSkyB he doesn't already own. A former Murdoch employee and adviser to Prime Minister David Cameron is under arrest. There could be more arrests -- especially if reports that staff at Murdoch's News Corp deleted emails wanted by police are true.
More profoundly, though, the mess is exposing the corruption at the heart of the British establishment.
"The truth is, we have all been in this together -- the press, politicians and leaders of all parties -- and yes, that includes me," an agitated Prime Minister Cameron told a news conference on Friday, as he announced a raft of inquiries to show that "the music has stopped" on cozy relationships between Murdoch's media and the country's leadership.
"The relationship needs to be different in the future."
A former public relations executive, Cameron needs to limit the damage after revelations that journalists at the News of the World had hacked into the cellphones of ordinary people -- including a schoolgirl who was later found murdered.
But he also wants to end the tradition of close links between senior politicians and the Murdoch empire. Those links have been particularly close in Cameron's case: he frequently socializes with News International's chief executive Rebekah Brooks in their Oxfordshire homes. But the connections go back more than three decades and cross political divides, encompassing several of Cameron's predecessors. Political figures of all stripes are regular guests at BSkyB's annual summer party.
Murdoch's newspapers include the Sun, an aggressive daily that is Britain's top-selling paper. Until his company said it would close the News of the World, he controlled four out of Britain's 21 main titles, while BSkyB -- Murdoch currently owns 39 percent -- reaches 10 million homes.
It's not the first time Britain's notoriously muck-raking tabloids have been chastised. After Princess Diana was killed in a Paris car crash in 1997, a wave of outrage led to a press pledge to curb the use of paparazzi-style photos of the royal family.
But this scandal is about more than press behavior. On trial in at least one of the inquiries that Cameron called on Friday will be decades of collusion between politicians and newspaper proprietors, most especially Murdoch -- collusion that could also implicate the British police.
Ivor Gaber, professor of political journalism at City University, said it would be naïve to think the scandal's fallout will herald a definitive end to all that. The relationship between politicians and the media is too symbiotic.
"I think as big a story that will emerge is corruption," he said.
Nicknamed "the dirty digger" in the UK, Murdoch has long used his newspapers' political influence to his commercial advantage. Thatcher's government allowed his company to take over The Times and Sunday Times without referring it to anti-trust authorities, even though he already owned the Sun and the News of the World.
By a 1992 general election, the Sun's political brass neck had become legendary: on election day its front page headline urged "the last person to leave Britain" to "turn out the lights" if Labour won. The next day, when the Conservatives were victorious, the front page read: "It's The Sun Wot Won It."
Mostly staunchly Conservative, the paper switched allegiance to Labour ahead of the 1997 election, won by Tony Blair. Former Sunday Times Editor Andrew Neil records a 1994 meeting between Blair and Murdoch. "Blair indicated that media ownership would not be onerous under Labour; Rupert that his newspapers were not wedded to the Tories," he wrote. Blair later travelled to Australia to meet Murdoch again.
Less public has been the extent to which some of Murdoch's British papers have intimidated or threatened public figures who crossed their path, or how far police officers may have been in the company's pay.
Labour MP Chris Bryant is one of several members of parliament to have said they were threatened with recriminations for airing topics that conflicted with the interests of Murdoch's empire. "I had a phone call from a friend of mine who'd been contacted by two people quite close to Rupert saying, 'This will not be forgotten -- it won't happen now but it will happen,'" he told the Evening Standard daily.
Another member of parliament this week accused Murdoch's son James, who chairs the British newspaper arm of News Corp, of buying the silence of hacking victims. That accusation would have been unthinkable only weeks ago.
"It is clear now that he personally, without board approval, authorized money to be paid by his company to silence people who had been hacked and to cover up criminal behavior within his organization," Labour MP and former minister Tom Watson told parliament. "This is nothing short of an attempt to pervert the course of justice."
The scandal has also delayed, and may even derail, the government approval Murdoch needs to take full control of BSkyB -- control Murdoch has long wanted and which would guarantee his business a rich stream of cash.
Labour MP Peter Mandelson recalls in his memoirs how Gordon Brown, who succeeded Blair as Prime Minister, reacted to hearing that the Sun was switching allegiance to back Cameron.
"He was convinced that a deal had been struck between Cameron's team and the Murdoch media" Mandelson wrote. The deal would yield political dividends for the Conservatives and commercial ones for the Murdoch empire, "given the prospect that a Conservative government seemed unlikely to take a restrictive view on issues of media competition."
That may have been true, just as it was under Labour for many years. The coming weeks will show how much that will now change. Gaber, the journalism professor, believes Murdoch would be hard to keep at bay. "Never underestimate the dirty digger," he said. "Murdoch loves politics -- he can't resist getting involved, and he loves talking to politicians."
Additional reporting by Keith Weir, Mike Peacock, Kate Holton and Georgina Prodhan in London; editing by Janet McBride