Liam Fox inquiry must be widened says Labour

Dr Fox resigned as fresh allegations emerged about his involvement in securing funding for self-styled “adviser” and lobbyist Adam Werritty.

In a letter to the Prime Minister, Dr Fox accepted that he had allowed the distinction between his personal interests and government activities to become “blurred”.

Despite Dr Fox’s resignation, Cabinet Secretary Sir Gus O’Donnell is still expected to complete his investigation into his links with Mr Werritty – who appeared to be effectively acting as an aide even though he had no official role at the MoD or with the Tory party.

But Labour said there were still many unanswered questions, including why Dr Fox took the decision to resign.

Dr Fox’s move came after reports emerged of Mr Werritty’s jet-set lifestyle following him around the world – funded by a company bankrolled by wealthy Tory backers.

I understand your reasons for deciding to resign as Defence Secretary, although I am very sorry to see you go. Prime Minister David Cameron

The prominent venture capitalist Jon Moulton claimed he had been approached by the Defence Secretary following last year’s general election to provide funds for Pargav, a not-for-profit company set up by Mr Werritty.

According to the Daily Mail, Mr Moulton bought a British defence company eight months before he paid funds into the not-for-profit company that helped fund Mr Werritty’s travels.

In February 2010, Mr Moulton reportedly paid £60m for Gardner UK, which makes components for aircraft including RAF fighter jets and troop transporters.

He reportedly gave a sum of up to £35,000 to Pargav in October of that year.

Dr Fox received strong support from Tory backbenchers when he apologised in the Commons on Monday and, despite a difficult relationship in the past, Mr Cameron appeared reluctant to wield the axe unless it was clear he had to go.

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Last night Mr Cameron paid tribute to the “superb job” Dr Fox had done at the Ministry of Defence. “I understand your reasons for deciding to resign as Defence Secretary, although I am very sorry to see you go,” he said.

However, the Prime Minister moved swiftly to carry out the first major reordering of his top team since taking power 17 months ago.

Right-winger Philip Hammond has been installed at Defence, while Justine Greening enters the Cabinet to take his place at Transport.

Earlier this week, an interim report by MoD Permanent Secretary Ursula Brennan disclosed that Mr Werritty had met Dr Fox 22 times at the department and joined him on 18 overseas trips since he came to office last year.

They included talks with the Israeli ambassador, a dinner with the new US commander of international forces in Afghanistan, and a meeting with a defence supplier in Dubai at which no officials were present.

The disclosures led to questions over how he was given such high-level access, even though he had no security clearance.

Liam Fox fell foul of the standards and he broke the rules. It was clear early on that he had breached the Ministerial Code. Shadow Defence Secretary Jim Murphy

In recent days attention has increasingly focused on how Mr Werritty was able to fund his travels, staying in some of the world’s finest hotels, as he trailed Dr Fox around the world.

Shadow defence secretary Jim Murphy said that Dr Fox’s resignation had been “unavoidable and inevitable”.

“Governments must have rules and ministers must have standards. Liam Fox fell foul of the standards and he broke the rules. It was clear early on that he had breached the Ministerial Code,” he said.

Allies of Dr Fox reluctantly accepted that he could not carry on in the face of the continuing disclosures and that he had taken “a brave and probably correct decision” to go.