In the sum of human misery, goes the argument I listened to with Buddhist forbearance last week, phone hacking does not rate very high. This is the starving millions defence, a familiar technique used to divert attention from any issue that is uncomfortable to a particular elite. MPs' expenses? Compared to global warming, old son, it hardly seems worth mentioning.

Although it is transparently self-serving, the gambit works well because in a world full of bewilderingly novel anguish, most of us try to prioritise our concerns: we are susceptible to suggestions that the phone-hacking scandal is navel gazing by the media; a chattering classes obsession; a Westminster village row.

But let me just say that this story, now given fresh momentum by last week's allegations that the News of the World and other newspapers, such as the Daily Mirror, used a convicted blackmailer to hack and steal the confidential data of, among others, Tony Blair, Kate Middleton, Jack Straw, Peter Mandelson, Lord Stevens, Alastair Campbell, Eddie George and Mervyn King, is a scandal of monumental proportions, which, were it not for the awkward fact that newspapers are swimming in their own filth, would be on every front page, instead of on those of a few liberal publications.

Newspapers still run the conversation in Britain. TV and radio can have an impact but rarely when Murdoch is concerned. For instance, you would have thought BBC news might welcome the opportunity again to draw attention to Murdoch's embarrassment, as well as to the behaviour of other titles that have been tormenting the corporation for decades, but the reality is that since John Birt's regime and the fallout from the David Kelly affair, the BBC behaves like a court eunuch. In days gone by, it would have forged ahead, but in 2011 its journalists wait for the Guardian's Nick Davies to publish a story or MP Tom Watson to use parliamentary privilege. At the moment, my marrows grow faster than the BBC reacts to this kind of news.

So the conversation is shut down and now a kind of chill extends to Parliament, where just a handful of legislators on the opposition benches, notably Watson, Lord Prescott, Chris Bryant and Paul Farrelly, continues to point to the elephant in the room, eyes popping with disbelief. The coalition benches are silent; ministers murmur about the reality of living with Murdoch and the Daily Mail, while the prime minister simply refers people such as Watson, who brought the new allegations to light at prime minister's questions last week, to the ongoing police investigation, Operation Weeting.

This line of leaving the police to get on with their job without political interference is no more credible than the starving millions defence, particularly when you consider the government just aches to wave through the merger between Murdoch's News International and BSkyB. The announcement by Jeremy Hunt, media and culture secretary, was apparently delayed by the allegations, but this wasn't out of any concern for principle, merely presentation.

The thing I find baffling is that this is the one opportunity legislators have to rein in newspapers – not to restrict the freedom of the press, but to control its invasiveness and exorcise NI's influence in Downing Street. This is a rare chance for politicians to restore some kind of balance to the situation, where newspapers act within the law and are subject to the kind of scrutiny that is applied remorselessly by journalists to every public figure and institution across the land. As to News International, it has been plain for a long time that the company has far too much power and should be put in its place.

"Ah!" cry Murdoch's defenders, "you're just using the phone-hacking scandal to attack our revered leader." That is true to a tiny degree, but even the laziest mind and the most inert conscience have no difficulty in seeing this issue in terms of right and wrong. Here is a major media company whose senior executives, it is alleged, were serially commissioning criminal acts, which involved not just private detective Glenn Mulcaire listening to people's phone messages, but a much more sinister individual named Jonathan Rees, who had a network of contacts in the police, despite his conviction and prison term for conspiring to plant cocaine on a woman so that her husband would get custody of her children.

This man is an unpleasant piece of work. His activities allegedly included illegally targeting bank accounts, bribing and blackmailing police officers and hacking into hard drives and email accounts. That Rees had access to Straw's private affairs when he was home secretary or Mandelson's when he was trade secretary is appalling. Blair and Campbell are both involved and it is known that details of King's mortgage were sold when he was deputy governor of the Bank of England.

Straw is said to be shocked by the revelations and with good reason – it is difficult to comprehend how such a serious breach of security was allowed to happen. Quite apart from bugging the home secretary, Rees is accused of using a hacker to steal information about MI6 agents working undercover in the Provisional IRA. Where was the security service while this was going on?

And there is a legion of concerns about the behaviour of the police over the last five years, their relations with News International and their failure to follow up evidence of wrongdoing, which is why we must be absolutely certain that the hundreds of thousands of documents produced by the investigation into Rees's activities are included in Operation Weeting. Only then will we gain a full picture of the criminal activities of newspapers.

Mandelson has called for Operation Weeting to be formally extended to include all the newspapers that paid Rees to acquire the personal information of such people as the Duchess of Cambridge. NI welcomed this because the company obviously hopes that its acute embarrassment will be diluted with the exposure of others. But let's not forget that there is no other company or organisation in Britain that could have come so far in this scandal without being forced to sack board members and order a wholesale clear out of the tier of executives heavily implicated in criminal behaviour. It is a measure of Murdoch's embedded influence that no public inquiry has been announced and NI has not suffered in any material way. On the contrary, it is about to be awarded a huge prize that will give him greatly enhanced powers to dictate terms in the market and to the government of the day.

Don't let vested interests tell you this story doesn't matter: it does – to all of us, because on this issue rests the future health of politics, journalism and our society.