Tue May 1, 2012 5:02am EDT
* UK parliamentary select committee to publish hacking report
* Murdoch's son James may face criticism from UK lawmakers
* UK PM Cameron defends minister over ties to News Corp
* Media watchdog Ofcom will examine report
By Georgina Prodhan and Kate Holton
LONDON, May 1 (Reuters) - Rupert Murdoch and his son James will be in the firing line on Tuesday when a British parliamentary committee issues its verdict on a phone-hacking scandal that has convulsed the family media empire and undermined the British government.
Committee members have said they were obstructed and put under surveillance by Murdoch's News Corp during their five-year investigation into the illegal hacking of the phones of celebrities, murder victims, politicians and soldiers for salacious newspaper stories.
Their report could force James Murdoch to sever his last ties with Britain's biggest satellite TV firm BSkyB, which News Corp had sought to take over before the scandal broke.
It will also embarrass Prime Minister David Cameron, who has acknowledged that politicians had been in thrall to the Murdochs and whose Conservative Party faces local elections across much of Britain on Thursday.
The committee is likely to criticise James Murdoch for failing to get to the bottom of the scandal, and Rupert Murdoch for the wider culture at the company, a source familiar with the situation told Reuters, adding that Conservative members on the committee were reluctant to criticise James Murdoch any further.
Media regulator Ofcom will take the report's findings into consideration in its assessment of whether BSkyB's owners and directors are "fit and proper" persons to hold a broadcast licence.
James Murdoch recently stepped down as chairman but remains on the board of BSkyB, which is 39 percent owned by News Corp.
"We'll all be looking at the wording in terms of the fit and proper test," said Charlie Beckett, founding director of the Polis journalism and society think-tank at the London School of Economics.
"If it says there was a systematic lack of due diligence at News International or News Corp, that might impinge on future fit and proper tests for Ofcom."
Cameron was summoned to parliament on Monday to explain why he would not investigate emails revealing that a ministerial aide had assured News Corp its bid for BSkyB would be approved.
He insisted there was no need to refer the case to his independent adviser on ministerial conduct, noting the emails had been handed to a separate judicial inquiry into press ethics, but did concede that politicians had been too keen to please the media.
"I am perfectly prepared to admit that the relationship between politicians and media proprietors got too close," he said during a rowdy debate, blaming politicians of both main parties for the failing.
The scandal over phone hacking has laid bare collusion between ministers, police and News Corp, strengthening long-held concerns that the ties between big money, the media and power are too close in Britain.
PARLIAMENT MISLED
Committee Chairman John Whittingdale opened the hearing with James and Rupert Murdoch last year by saying his committee had found it inconceivable that only one reporter at their News of the World Sunday tabloid had been involved in the hacking scandal.
"In the last few weeks, not only has evidence emerged that I think has vindicated the Committee's conclusion, but abuses have been revealed that have angered and shocked the entire country," he said. "It is also clear that Parliament has been misled."
Audiences around the world witnessed the 81-year-old Rupert Murdoch - whose newspapers claimed the power to make or break British politicians - saying it was the most humble day of his life and saw him hit with a foam pie at the height of the scandal last July.
He answered many of the questions in monosyllables, sometimes flummoxing the committee members, while James Murdoch infuriated them at times with lengthy management-speak.
The committee is expected to say James Murdoch was incompetent at best for asking few questions about a payoff he approved of more than half a million pounds ($800,000) to a hacking victim who had evidence the practice was widespread.
Its report, which may run to 100 pages, is also expected to criticise Rupert Murdoch, chief executive of News Corp, for allowing a culture of illegality to flourish. Murdoch shut the News of the World last year.
Les Hinton, former head of News Corp's British newspaper arm, Tom Crone, a legal executive at the News of the World, and the paper's former editor, Colin Myler, will also come under the spotlight, the source said.
James Murdoch resigned last month as chairman of BSkyB, saying he did not want to be a "lightning rod" for damage from the phone-hacking scandal.
He admitted last week he had raised the issue of the takeover with Cameron at a Christmas dinner in 2010.
The committee will present its report to parliament, which is likely to hold a debate on its findings, and the government then has 60 days to respond.
A previous critical report by the committee came before last July's revelation that people working for the News of the World had hacked into the voicemail of murdered schoolgirl Milly Dowler, which fuelled public anger and led to more revelations.
Relations between News Corp and Cameron, who once employed an ex-News of the World editor as his spokesman, will face more scrutiny in the coming months when Rebekah Brooks, a former Murdoch confidante and News Corp executive, reveals her text messages and emails with Cameron, a neighbour and former friend, as part of a separate judicial press inquiry.
As the committee has to be careful not to prejudice any criminal trials of figures involved in the scandal, it has focused more on the Murdochs and others who have not been arrested.
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