Emma Alberici reported this story on Monday, September 12, 2011 18:21:00

MARK COLVIN: One of the enduring mysteries of the phone hacking scandal in Britain concerns the former editor of the News of the World, Andy Coulson.



Why, after Coulson resigned from the paper over hacking done on his watch, did the Tory leadership hire him as chief spokesman? And why did the prime minister David Cameron hang on to him for so long as the scandal deepened?



Andy Coulson did eventually leave Downing St in January this year. Five months later he was arrested on charges related to phone hacking allegations.



And eight weeks ago the former News International chief executive Rebekah Brooks revealed to a parliamentary committee hearing that it was George Osborne who recommended Mr Coulson.



Who's George Osborne? Well he's a close friend of David Cameron's from university days and is now Britain's chancellor of the exchequer, or treasurer. That means that he lives at 11 Downing Street while Mr Cameron lives at Number 10.



So why was Mr Osborne so keen to employ Andy Coulson? Tonight Natalie Rowe, the woman at the heart of drugs and prostitution claims against the chancellor, has spoken to PM in her first broadcast interview.



Europe correspondent Emma Alberici has been investigating the history of George Osborne's links with the News of the World and allegations that Andy Coulson helped the chancellor manipulate the news agenda to gain political advantage.



EMMA ALBERICI: Throughout the 1990s Natalie Rowe ran the Black Beauties escort agency, hiring out prostitutes for $500 an hour.



Her boyfriend at the time was William Sinclair - a descendent of one of the biggest landowners in the UK.



He and George Osborne were members of Oxford University's Bullingdon Club, a male only institution with a reputation for heavy drinking and rioting.



(to Natalie Rowe) Were you friends?



NATALIE ROWE: Me and George?



EMMA ALBERICI: Yes.



NATALIE ROWE: Yeah.



EMMA ALBERICI: And did it ever become more than friendship?



NATALIE ROWE: Yes.



EMMA ALBERICI: What did George Osborne think about your line of work?



NATALIE ROWE: He was very intrigued. What initially happened was is that William and George and Christopher, I'd left them at my apartment. I initially kept it a secret from William. I mean they knew that I had an escort agency but they didn't know what I did.



When I got back they'd found the paddles and the whips, the chains and the handcuffs. But they found it quite amusing.



And you know I thought it was going to be more horrific an experience. That, you know, William was going to be really you know peed off by his girlfriend you know doing, what was she doing with all this stuff. You know but it's come clean. And I said look, like to dominate men. And George was pretty intrigued indeed about that side of me.



EMMA ALBERICI: In 1994 Natalie Rowe became pregnant to William Sinclair. They threw a party to celebrate.



Photographs taken that night show George Osborne smiling with his arm around Natalie Rowe. A white powder on the table in front of them is said to be cocaine.



Natalie Rowe is adamant that she wasn't taking drugs that night because she was carrying her son.



NATALIE ROWE: I mean it's been said in the newspapers that he was at university. He wasn't. At the time he was working for William Hague. I remember that vividly because he called William Hague insipid and I didn't know what the word meant. I do now. So he definitely was in government by then but I think he was getting more and more of a high profile.



So there was definitely, there was cocaine on that night on the table. George Osborne did take cocaine on that night. And not just on that night. He took it on a regular basis with me, with his friends.



There were more witnesses, not just me, that witnessed George Osborne taking cocaine. So it's you know, there are other people out there that know the truth.



On that particular night he had taken a line. And I said to George jokingly that when you're prime minister one day I'll have all the dirty goods on you. And he laughed and took a big fat line of cocaine.



EMMA ALBERICI: That day did come after she'd watched George Osborne and David Cameron in the House of Commons refuse to answer questions about whether they'd taken illegal drugs.



After some negotiation she decided to sell her story to The Sunday Mirror. She was then shocked when on the same day it was published on page one of the News of the World.



Police have since told her that reporters from Rupert Murdoch's biggest selling newspaper were hacking into her phone.



More stunning to her lawyer Mark Lewis was the way the News of the World approached Natalie Rowe's story, calling her a cocaine snorting call girl and using an unnamed source to undermine her credibility.



MARK LEWIS: The editor at the time was Andy Coulson. And I think that's worth remembering because of the future relationship that we have between the Conservative Party, the prime minister and Andy Coulson.



EMMA ALBERICI: Andy Coulson also wrote an editorial, or had it written for him, dismissing Natalie Rowe's story.



It said George Osborne had been a young man who got caught up in this murky world. The editorial then spoke on his behalf, quote: "Mr Osborne robustly condemns drugs for the destruction they wreak."



MARK LEWIS: That editorial could have gone completely the other way. It could have said, for example, whilst we do not believe that George Osborne took drugs he showed a serious error of judgement being at the party or being at the flat where drugs were taken, where there was an allegation of prostitution. He showed that error of judgement and therefore he's not right to be in the heart of politics.



Now the decision on which spin to give to the story by the editor of the News of the World particularly was something that determined his future in politics.



EMMA ALBERICI: You think so?



MARK LEWIS: Undoubtedly so because the editorial could have been written the other way. And if it would have been written the other way it would have finished his career I'm sure.



EMMA ALBERICI: George Osborne's office claimed that the stories that appeared were defamatory and untrue. And yet in the six years since then the now chancellor has never sued a newspaper or Natalie Rowe about the prostitution and drugs claims.



EMMA ALBERICI: One would have thought George Osborne would have looked at it and said the last person that I want to be in the heart of my government is somebody who had that information or who had been vengeful enough against me to write or publish a story that had me with cocaine.



But if you look at it because there was a nice gloss put on the story and an editorial that effectively gave George Osborne the benefit of the doubt then you could say well, George Osborne was almost indebted to Andy Coulson.



Andy Coulson had done George Osborne a favour and perhaps it was time for George Osborne to reciprocate and do a favour back.



EMMA ALBERICI: Less than two years later, after being forced to leave the News of the World over phone hacking allegations, George Osborne recommended Andy Coulson for the job of media manager of the Conservative Party.



(to Natalie Rowe) What's your experience of dealing with the tabloids here in the UK?



NATALIE ROWE: I learned very quickly that you can't trust a newspaper. You can't trust them. a) The story, you give them the story and I can tell you now that the story that I'd given that the News of the World are aware of, they haven't printed nowhere near what the real story is about me and George Osborne at all.



Well they stole the story and then they didn't even tell it as it should have been told. They completely diluted it and made it look like I was not to be trusted, you know this vice girl, and that you know, I felt that it looked as if you can't really take, believe this woman. And all for George Osborne, you know, has gone around saying that this woman that he barely knew, who was touting a story around.



Well George more than knew me. And you know I've always said that the truth will always catch up on you. And it's going to catch up on him.



MARK COLVIN: Natalie Rowe speaking to Europe correspondent Emma Alberici.



We've been trying by letter and by phone to get a comment from George Osborne for almost a week but there's been no response.



And you can see Emma's TV report on Lateline on ABC 1 tonight after Q and A.