The editor in chief of the Daily Mail has returned to the Leveson Inquiry today to answer questions about actor Hugh GrantPaul Dacre was questioned by David Sherborne, counsel for the core participant victims, over a Mail on Sunday article claiming a “plummy-voiced executive” leaving messages on Grant’s phone had caused the breakdown of his relationship with Jemima Khan.The editor said he would only retract a statement accusing the actor of “mendacious smears” against his company if Grant agreed to take back what he called “repeated statements” about the Mail.In evidence to the inquiry Grant had speculated the story may have been obtained by phone hacking.Dacre told Sherborne: “Our group did not hack phones and I rather resent your continued insinuations that we did.”Referring to the News of the World, he said: “Mr Grant is obsessed by trying to drag the Daily Mail into another newspaper's scandal.”Sherborne asked why Grant and Khan had not been notified of the story in advance. Dacre said he believed a reporter had contacted a spokesman. Jonathan Caplan QC, representing Associated News, said a sentence in the article which declared the couple had “no comment" confirmed this.Dacre gave evidence to the inquiry on Tuesday but was recalled by the chairman who felt the issue should be examined “in the interests of fairness”.Lord Justice Leveson told the editor he would appreciate his input as the inquiry continues.Dacre replied: “I have shown this week I am prepared to devote a lot of time to it.”The inquiry also heard from publicist Max Clifford, who explained he had settled his own phone hacking claim against the News of the World over a “quiet lunch” in Mayfair with Rebekah Brooks.It was agreed he would receive £220,000 a year for three years plus legal costs and, as part of the arrangement, provide the paper with tips for stories.He added: “The whole package came to just under £1m. We shook hands, there was no contract.”Clifford said he had become increasingly aware of phone hacking “as the years went by” and journalists had become more creative in their methods to deliver results. He said the nation had been “shocked and horrified” by the hacking of Milly Dowler’s phone by the News of the World.He said: “That sent shockwaves throughout Fleet Street, particularly tabloids. [Newspapers] wouldn't run with something because of the Leveson inquiry.”He described the story behind the infamous article “Freddie Star ate my hamster”. Starr, a client of Clifford, wanted to prevent the story being printed. The publicist told then Sun editor Kelvin MacKenzie to run it anyway with the comedian’s denial.He said: “I was looking after Freddie’s career and his PR and I believed it would be something that would help him.”He added: “I couldn't ever justify [that story] as in the public interest.”Clifford advocated a new regulatory body largely funded by Parliament, ensuring newspapers have less of a financial interest, which would protect members of the public.He said: “I certainly don’t think that having a responsible body that is able to protect [against] the excesses of the media would in any way be damaging to them or their freedom. I think it would give them greater respect, and in the long term, possibly help the chances of their survival.“If suddenly you're thrust into a potential media nightmare you need someone you can call straight away who is able to respond and hopefully stop a potential disaster which could destroy you and your family.”Clifford told the inquiry he had been called by one of the women involved in the News of the World expose on former FIA president Max Mosley, concerned that the paper would publish her photograph and personal information.He rang a man he believed to be Ian Edmondson, then news editor at the paper, telling him: “If I was you I'd leave them alone”.He countered evidence given to the inquiry by former Labour spin doctor Alastair Campbell and said a story revealing the pregnancy of Cherie Blair in 1999 was not obtained through hacking but from someone close to her.The source told Clifford and he gave the story to Piers Morgan, then editor of the Mirror.Also giving evidence today was Michelle Stanistreet, general secretary of the National Union of Journalists. She provided the inquiry with several written statements from anonymous journalists.One testimony from a journalist with 30 years’ experience in national newspapers said there had been “tremendous pressure” when working at the News of the World and a "macho" culture had pervaded the industry.Another said: “If you did what Sean Hoare did or Paul McMullan did [speaking out against the industry], you don't work in the industry again.”Stainstreet said Paul Dacre’s proposal of accredited press cards for journalists was not a “practical solution”.She added: “This is yet another examples of how an editor, a very high profile member of the industry, is trying to pin the blame on individual journalists.”She told the inquiry private investigator Derek Webb had applied for an NUJ press card as a researcher, and had been recommended by two references, but agreed he should not have received accreditation.The inquiry will now take a two-week break and return for module 2, to look into the relationship between the press and the police, on February 28.