James Harding says some readers cancelled subscriptions in wake of revelations about News of the World's alleged activities

The editor of the Times, James Harding, has admitted that News International's handling of the phone-hacking crisis was "catastrophic" and that it impacted on the paper's sales.

Harding said readers had cancelled subscriptions to the Times and to digital versions of the paper in the immediate aftermath of the revelations about Milly Dowler's phone allegedly being hacked by News International sister title the News of the World.

Asked whether News International would recover and if he still felt the way the company had reacted had been "catastrophic", as described by one of his paper's leader columns, he said: "Yes, I think that would be a pretty descriptive word for what it happened and the struggle they had in getting to grips with it."

But Harding, who has pursued a fiercely independent line on the scandal since the Dowler story broke in early July, said he believed Rupert Murdoch was now back in charge after accepting the resignation of Rebekah Brooks, dropping the bid for BSkyB and apologising to the Dowler family.

"You have to own your mistakes, otherwise your mistakes own you," Harding told Steve Hewlett, presenter of Radio 4's The Media Show.

The Times lost more than 20,000 sales on some days following the Dowler revelation, according to industry sources.

"In the first couple of weeks after the Milly Dowler story broke we were acutely concerned about it and with good reason. There were some people who were not just disgusted by the News of the World but wanted to express that anger in any way they could," Harding said.

He was then asked if the Times saw evidence of this in losing its own readers. "Yes we absolutely did," Harding replied. "We saw small numbers of people cancelling their digital subscriptions or cancelling their print subscriptions – happily those have largely come back."

He said he knew he was in for a "very testing" time when the Dowler story broke more than three weeks ago and that the scrutiny of press behaviour on all newspapers would be a "watershed" moment for British journalism.

But he added it would be lamentable if the ambitions of journalists to hold the powerful and privileged to account were in any way stymied.

"I think it's an unpopular position at the moment. But we need to make sure we don't get into a circular firing squad in Fleet Street, we don't spend our time in a process of self-flagellation, we believe in a free press," Harding said.

"I was very concerned for the reputation of journalism generally the moment I woke. We are now three and a half weeks, the better part of a month on," he added. "I think if you went round the country today and you said 'Do you still think that's it's important in a free society that the press hold the powerful and the privileged to account?' I think they would say yes. If you said 'Do you think it would be a good idea for David Cameron and Ed Miliband to set the terms of the way in which newspapers work?', most people would say no."

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