By Paul Sandle
LONDON, July 11 (Reuters) - British government lawyers are drawing up plans to block Rupert Murdoch's bid to buy out the broadcaster BSkyB, the Independent newspaper said on Monday, a move that could spare Prime Minister David Cameron a potentially damaging parliamentary vote.
Opposition Labour party leader Ed Miliband said on Sunday that he would force parliament to vote this week if Cameron did not take steps to halt the $14-billion bid by Murdoch's News Corp for the 61 percent of the profitable pay-TV operator BSkyB that it does not already own.
A vote in parliament could split the coalition between Cameron's Conservatives and the Liberal Democrats who, traditionally less favoured by Murdoch's media, have signalled they could vote with Labour on the issue.
It would also give Labour a chance to cast itself, at Cameron's expense, as the champion of a public outraged by allegations that News of the World reporters and editors were complicit in illegally hacking the voicemails of a murdered girl, London bombing victims and Britain's war dead in search of stories.
"We are working on a plan to suspend the deal while the police investigation is taking place," the Independent quoted a senior government source as saying. A spokesman for the prime minister declined to comment.
Murdoch's own Sunday Times reported that a 2007 internal investigation at the News of the World had found evidence that phone hacking was more widespread than the company had admitted and that staff had illegally paid police for information.
Murdoch, 80, flew into London on Sunday to take charge of attempts to save the BSkyB deal and limit the damage to News Corp, the world's largest news conglomerate.
As he was driven into his London headquarters, he held up the final edition of the News of the World, the 168-year-old newspaper he bought in 1969 then promptly closed last week in a bid to stem the crisis.
The paper is best known for its lurid headlines exposing misadventures of the rich, royal and famous. Its last headline said simply "Thank You & Goodbye" over a montage of some of its most celebrated splashes of the past 168 years.
On Monday, the Daily Mirror newspaper reported, citing an unidentified source, that News of the World journalists had offered to pay a New York police officer to retrieve the private phone records of victims of the Sept. 11, 2001, attacks.
Murdoch dined on Sunday in an upmarket hotel with his British newspaper arm's chief executive Rebekah Brooks, a friend of Cameron's and editor of the News of the World at the time of the alleged phone-hacking, and his son and heir apparent, James.
The affair has thrown a harsh spotlight on the long-standing ties between British politicians and Murdoch. In particular, it has called into question the judgment of Cameron, who hired former News of the World editor Andy Coulson as his head of communications.
Coulson later resigned, and was arrested on Friday and released on bail after being questioned by police about voicemail hacking and payments to police. Coulson denies any knowledge that hacking was carried out.
Cameron has insisted that the government has no legal power to block the BSkyB deal if it is satisfied that enough media plurality -- competition -- will be maintained. It had already indicated it would accept News Corp's assurances on this count.
"FIT AND PROPER"
The Independent said the government had latterly hoped the broadcasting regulator Ofcom would stop the deal going through on grounds that News Corp directors were not "fit and proper" to run BSkyB, but this was unlikely to happen until a possibly lengthy police investigation had been completed.
Instead, it said lawyers in the department of Culture Secretary Jeremy Hunt were now looking at using competition criteria to block the deal.
That would still be embarrassing for the prime minister, but arguably less damaging than a split with his coalition partners.
Blocking the BSkyB deal on grounds of media plurality would also be better for Murdoch than if he and his team were found to be not "fit and proper" to run the broadcaster, as that could see him lose his existing 39 percent of the company.
Cameron on Friday joined calls for Brooks to step down as chief executive of News Corp's News International arm at a news conference where he admitted politicians had been in thrall to media for years, and ordered a public inquiry.
Murdoch has stuck by Brooks. Asked in London by Reuters what his first priority was, he gestured at her and said: "This one."
News Corp shares fell more than 5 percent in New York last week and shares in BSkyB are expected to come under pressure this week on doubts that the buyout will be allowed to proceed. (Writing by Jon Hemming; Editing by Kevin Liffey and Janet Lawrence)
Copyright 2011 Thomson Reuters. Click for Restrictions.
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