David Cameron finally started to shape events in the phone hacking scandal on Wednesday as he set up the wide ranging judge-led inquiry and made clear his impatience with the police.

But this is far from the end of the affair for the prime minister. His decision to take Andy Coulson into Downing Street, despite warnings from Nick Clegg, Boris Johnson and – yes the Guardian – is going to haunt him for some time.

Ian Kirby, the former political editor of the News of the World, today reveals that Johnson warned the prime minister's closest ally George Osborne about hiring Coulson. The future chancellor was decisive in recruiting Coulson in 2007 after he resigned as editor of the News of the World following the jailing of the paper's former royal editor. Coulson, who was arrested last Friday, has consistently denied any knowledge of wrong doing.

In the Spectator diary this week Kirby tells the story of an encounter between the London mayor and the chancellor at last week's Spectator summer party:

The Mayor of London is having his photograph taken next to George Osborne. 'I warned you about Coulson!' Boris had shouted at him earlier. 'But you wouldn't listen.' It was not clear he was joking.

Liberal Democrats, who have clocked the pressure on the prime minister, are now enjoying a new parlour game. The eyes of Lib Dems, even at senior levels, light up when the game begins with the following question. Will Nick Clegg pull the plug on David Cameron?

At the moment this is the remotest of remote prospects. This means that newcomers to the game laugh it off as absurd. But then their mood changes as the game begins with these questions:

What if evidence emerges that is acutely embarrassing for Cameron? This could include:

• His social encounters with senior figures in the Murdoch empire. Cameron is acutely sensitive about this. I was sent round the houses by his aides in January when I discovered that he was a guest of Rebekah Brooks, the News International chief executive, at her Oxfordshire home days after stripping Vince Cable of his responsibilities for the BSkyB bid.

• His discussions with Coulson about his time as editor of the News of the World. Cameron told the Labour MP Barry Gardiner on Wednesday that he spoke to Coulson "all the time". This is their exchange:

BG: Can the prime minister tell the House whether he had any conversations about phone-hacking with Andy Coulson at the time of Mr Coulson's resignation – not his appointment – and will he place in the Library a log of any meetings and phone calls that have taken place between him and Andy Coulson since Mr Coulson's resignation? DC: Of course, all the time during Andy Coulson's employment, when articles were appearing and there was a storm of allegations, I had that conversation with him many times, because I had employed him. I had accepted his assurances: assurances which, as I have said, were given to many others. In the end, the reason for his resignation, the reason for his giving up on the second chance, was that he just felt that he could not go on doing the job, a job that he did well – no one denies that he did the job well – because of all the allegations. As for contacts, I have said what I have said about transparency, and I think that that is right.

If anything emerges in those discussions which shows that Cameron was less than forthright in his questioning of Coulson – or that his thoughts about phone hacking were less trenchant than his words now – that will be damaging.

Will Nick Clegg pull the plug if Cameron is damaged?

This is where the eyes of Lib Dems really light up. If damaging details emerge Clegg could go to Cameron and say that his party is deeply committed to the coalition but it can no longer serve under him as prime minister. At this point Cameron has to decide: does he sacrifice his career to save the coalition, paving the way for another Tory to take his place as prime minister, or does he soldier on as leader of a deeply unstable minority administration?

Lib Dems are enjoying the prospect of bringing down Cameron. It would allow them to go into the next election saying they had saved two cherished British institutions – the NHS and the office of the prime minister.

This is all very far-fetched and belongs in the world of a fantasy parlour game. But nobody should forget that relations between Cameron and Clegg changed forever when the prime minister – in the eyes of his deputy – broke his words to allow the No campaign in the AV campaign to turn on him.

Clegg is not out for revenge. But any warmth he felt towards Cameron evaporated for good in the spring.