Former News of the World editor Andy Coulson "set up the payments to facilitate" phone hacking at the News of the World, it was claimed in court today.
Giving evidence for a fourth day at the hacking trial, former royal editor Clive Goodman made the accusation against his old boss.
He told the Old Bailey jury that after his arrest for hacking with private investigator Glenn Mulcaire in 2006, he felt he was "being hung out to dry".
Describing his feelings on his arrest, he said: "I was immediately worried I would be blamed for all Glenn's activities.
"I thought that was not the case, that lots of other people at the NotW were doing this and I was the one that got caught.
"Andy Coulson actually set up the payments to facilitate all this."
After Goodman was charged, Coulson rang him and tried to persuade him to plead guilty as soon as possible and "make a clean breast of it", he said.
"He wanted to know the depth of the police investigation and other names involved from the NotW."
Goodman went on: "The call from Andy disturbed me. I felt at risk of being parcelled off as Mulcaire's only conspirator so I was seeking emails that would prove others were involved and Andy (Coulson) knew what was going on. Really just trying to defend myself."
He set up a Hotmail account in an internet cafe to forward emails from the NotW, he told the court.
Goodman later described a meeting with Coulson at a cafe in Wimbledon, south west London, when his boss allegedly tried again to convince him to admit he was a "lone wolf" and had "gone off the reservation".
Goodman said Coulson promised him that if he pleaded guilty he could come back to a job at the NotW as a writer or sub editor.
He claimed Coulson told him: "You could be one of those people who come back – it's up to you."
Goodman said he was worried Coulson had used the phrase "lone wolf" because those were the exact words used by his solicitor who was being paid by News International.
Coulson denies conspiring to hack phones and commit misconduct in a public office.
Goodman, 56, of Addlestone, Surrey, admitted hacking with Mulcaire in 2006. However, he denies conspiracy to commit misconduct in public office.
As Goodman prepared his case in November 2006, he told the court his lawyer advised him not to "thrash around and blame anybody else" as a judge was more likely to take a "benign view" of someone who took responsibility for their actions.
Goodman said he was concerned about the dialogue between his lawyer and News International (NI) and that he was getting views of the company as well as the solicitor.
On a suggestion by his lawyer to give papers on the case to the NotW, he said: "I absolutely did not want a set of prosecution documents going to the NotW because I did not trust them – and newspapers are leaky places."
Despite his instructions to the contrary, the lawyer told a NI lawyer that Goodman was happy for the papers to be viewed, the court heard.
The court heard that during a meeting about the upcoming case, a company lawyer told him he would not be dismissed as long as he did not implicate anyone else.
If he named others, Goodman said he was told: "You cannot expect Andy to take you back after that."
The company lawyer also allegedly told Goodman that Coulson would deny any responsibility or involvement.
After the meeting with the company lawyer, Coulson rang Goodman at home to "clarify" the job position.
Goodman's lawyer David Spens QC read from a transcript of the call his client taped. In it, Coulson said he "cannot be 200%" about what would happen but he had a "duty of care" as editor and his intention was to continue Goodman's employment.
At a subsequent meeting about the case, Goodman was advised by another lawyer paid for by NI not to implicate others in a five-page mitigation document.
Goodman said that was despite the names of three more NotW staff appearing in prosecution papers as having contact with Mulcaire.
He told the court that since none of them had been arrested, police took the decision to "stop at me".
He added: "Despite this evidence, nobody was doing anything so I did not seem to have any choice."
Goodman entered guilty pleas at the end of 2006.