The Countess of Wessex stepped down from the chair of her public relations company yesterday, as the controversy over the "Sophiegate" tapes threatened relations between the Blair government and Buckingham Palace.
Mr Murray Harkin also resigned as managing director of R-JH Public Relations after making embarrassing revelations about his sex life and cocaine use during his and the countess's meetings with the "fake sheik" reporter from the News of the World.
The newspaper published the transcripts of the tapes in full yesterday to "set the record straight" and illustrate "the impossibility of Sophie's double life as a royal and as a publicist". In the process, the paper acquitted the former Ms Sophie Rhys-Jones of describing Ms Cheri Blair as "horrid" or Mr William Hague "deformed".
However, the transcripts fuelled charges that the countess and her partner had been prepared to exploit her royal connections, and forced Bucking
ham Palace to announce an immediate review of potential conflicts of interests for working royals - and how best to avoid them.
The Conservative leader attempted to draw a line under the affair after it emerged the countess had regretted his sounding "like a puppet", while praising his "real vision" and his skill in taking apart Mr Gordon Brown's "nothing" budget.
At the same time, the fires of republican discontent in some Labour circles were fanned by her assertions of a "frightening" increase in tax since the party came to power, coupled with her defence of fox-hunting and her description of the Prime Minister as "ignorant of the countryside".
However, it was not her political indiscretions but her implicit understanding of the "additional profile" enjoyed by her clients, which forced the countess, with the backing of Queen Elizabeth, to confirm she was standing down while her business was restructured and the issues raised by the affair were considered.
On the promise of a lucrative leisure complex contract in Dubai, the countess met the fake sheik and his "entourage" at the Dorchester Hotel. According to the transcript, she said: "In some ways, being in the kind of business that I'm in does, it does cause some conflicts. So obviously, with all clients we are very straightforward and explain they must treat our company the same as they would treat another PR company. I'm not there to endorse other people's products on a commercial basis, that's not what it's about."
But she went on: "If anybody ever gets some kind of additional profile or benefit from being involved with us because of my situation, that's an unspoken benefit. It's not something that anybody promises, it just occurs."
In her statement, the countess said: "I am deeply distressed by the carrying out of an entrapment operation on me and my business but I also much regret my own misjudgment in succumbing to that subterfuge."
In its separate statement, Buckingham Palace said the queen accepted that, despite the recent difficulties, the Earl and Countess of Wessex both wished to continue their working careers, and that they had her support in doing so."
However, a senior Labour backbencher, Mr Tony Wright, called on the Prime Minister to lead the debate on the modernisation of the monarchy. He told the BBC: "If we don't have something like a select committee or a commission on the monarchy, it will be the end of the monarchy anyway . . . We now have to decide how and why we can make constitutional monarchy work."
Downing Street reaffirmed Mr Blair's support for the monarchy this weekend, while stopping short of any public rebuke for the minister, Mr Kim Howells, who declared: "I've never understood the attraction of royalty. They're all a bit bonkers . . . They choose very strange partners, they're not managing the modern world very well."