Alan Johnson, the former home secretary, yesterday accused the Metropolitan police of a "certain lethargy" in its investigation of illegal phone hacking allegations at the News of the World.

In an emergency Commons debate in which MPs across the house criticised the police and News International, Johnson said Scotland Yard had possessed all the information that is now emerging since 2006.

Among other comments made during the three-hour debate:

• Labour backbencher Tom Watson accused James Murdoch of personally authorising a cover-up of the phone hacking scandal and said there was an attempt to destroy News International data at the HCL storage facility in Chennai, India.

• John Whittingdale, Tory chairman of the Commons culture select committee, said senior figures from News International had denied knowledge of phone hacking while police had evidence it had taken place.

Johnson, who was home secretary when the Guardian published evidence in July 2009 that News International had paid more than £1m to settle legal cases, said Scotland Yard had persuaded him not to pursue the matter on the grounds that it was an obsession of the news group.

Johnson admitted to MPs that a public inquiry could be awkward for him, as he failed to call for a review of the police investigation into criminal wrongdoing after the Guardian reported in July 2009 that News International paid £700,000 to Gordon Taylor. The chief executive of the Professional Footballers' Association sued the News of the World after Glenn Mulcaire, the investigator used by the newspaper, admitted hacking his phone.

The former home secretary said: "I wish I could give a really eloquent explanation of how brilliant I was as a home secretary that would give me an insight into why I didn't act. I can't do that. I can say this. In July 2009, when the allegation was made about Gordon Taylor and the Guardian's front-page story, we did look very carefully. There wasn't much we could say beyond talking to the commissioner and John Yates in particular and others to say: 'Look is there anything behind this?'

"I have to tell you that the atmospherics, the mood, the public mood, the mood in parliament, the mood elsewhere, was this was an obsession of one newspaper. Let us praise the Guardian for doggedly staying on this case. We were told this was the obsession of one newspaper and a few individual backbenchers.

What was the view in the Home Office at the time? We looked very seriously about whether to have an independent review of the Metropolitan Police's investigation. Whilst lots of things have happened over the years since 2006, everything takes you back to that original inquiry led by Andy Hayman in 2005-6. All that information that is now emerging was there at that time. So the idea of getting HMIC [Her Majesty's Inspectorate of Constabulary] to go in and do an independent investigation – I was told for the IPCC [Independent Police Complaints Commission] it was outside their remit. That may not be the case now.

"There was a view that we should wait for the [director of public prosecutions] to report as well. It was Keir Starmer. The DPP said on the information given to him by the police there was no cause for any further investigation. So we were all swimming around here wondering whether we were receiving the correct information or not."

Johnson quoted "very clear statements" from the police that said it was an operational matter for them to inform people if their phones had been hacked. He said: "There were very clear statements being made to us. You do get the Home Office [saying] if we call an independent investigator in … it would cause a serious concern because politicians will be interfering in an operational matter."

Johnson criticised the police: "I have huge regard for the Metropolitan police, I have huge regard for the work they do. Were they being evasive, were they being dishonest, were they being lethargic? I think it's one of those three. I think there was a certain lethargy that, with so much else going on, we've got two people banged up, do we need to go any further into this?"

Watson, the former Labour Cabinet Office minister who has followed the hacking scandal, used parliamentary privilege to accuse James Murdoch of authorising a cover-up. "The whole board of News International is responsible for this company. I believe Mr James Murdoch should be suspended from office while the police now investigate what I believe is his personal authorisation to plan a cover-up of this scandal. Mr James Murdoch is the chairman.

"It is clear now that he personally, and without board approval, authorised money to be paid by his company to silence people who'd been hacked and to cover up criminal behaviour within his organisation. This is nothing short of an attempt to pervert the course of justice.

"There is no escape now for News International from the responsibility for systematically breaking the law. There is now also no escape from the fact that they sought to pervert the course of justice. The police should also ask Mr James Murdoch and Rebekah Brooks whether they know of the attempted destruction of data at the HCL storage facility in Chennai, India."

Whittingdale read out evidence from the former News International chairman Les Hinton, who told his committee in 2007 that only one News of the World journalist had hacked phones. He added that Tom Crone, the company's legal manager, Stuart Kuttner, the former managing editor and former editor Andy Coulson had all blamed the so-called rogue reporter, former royal editor Clive Goodman.

Whittingdale said: "Almost every piece of evidence we are now learning about has been in the possession of the police since 2006. That raises very serious questions about why it was not pursued, and why we were told repeatedly that the evidence did not exist, and why the police assured us that there was no evidence to suggest that the investigation should go any further."

Zac Goldsmith, a Conservative, said the Murdoch empire had become too powerful. "We have seen, I would say, systemic abuse of almost unprecedented power. There is nothing noble in what these newspapers have been doing.

"Rupert Murdoch is clearly a very, very talented businessman, he's possibly even a genius, but his organisation has grown too powerful and has abused that power. It has systematically corrupted the police and in my view has gelded this parliament to our shame."