Google tax policy is 'just capitalism'

Britain should stop complaining and change its tax laws, search-engine chief Eric Schmidt tells Hay festival audience

Eric Schmidt, the head of Google, has shrugged off criticism that his company pays only a fraction of its tax bill, saying it's "just capitalism". He also challenged the British Government to change the law or stop complaining.

Speaking at Hay-on-Wye literary festival yesterday, the executive chairman of the world's biggest search engine said: "It is normal to do what Google is doing. It is up to the Government to change it."

Last weekend, a former Google executive blew the whistle on a massive and "immoral" tax avoidance scheme at the firm, by which it paid only £10m to HMRC in the five years to 2011, despite generating UK revenue of £11.9bn. The firm claims it legitimately channels its business through its Dublin office, where corporation tax is 12.5 per cent, compared with Britain's 21 per cent. But Barney Jones, 34, who worked at Google from 2002 to 2006, claims he has email evidence showing Google was conducting sales in Britain that would make it liable to pay tax there. Google replies: "It is difficult to respond fully to documents we have not seen.... These questions relate to Google's business in the UK going back a decade or more.... Google pays corporate tax on its UK activities and complies fully with the law."

The Public Accounts Committee has called Google's tax arrangements "devious", and Ed Miliband says it is "wrong". But David Cameron did not ask Mr Schmidt about it during a meeting on Monday to discuss the Prime Minister's agenda for the G8 summit. A No 10 spokesperson said: "We don't talk about individuals' or individual companies' tax affairs."

In his talk at Hay, promoting his new book, The New Digital Age: Reshaping the Future of People, Nations and Business, Mr Schmidt also discussed privacy on the internet. He said that being an internet refusenik did not guarantee keeping information about you off the web. "It's very difficult to be a missing person digitally," he said. "You are better off being online and understanding how you control your digital identity."

On the other side of Hay, ex-Tory leader Lord Howard was talking about the infamous incident when Jeremy Paxman asked him the same question 14 times on Newsnight. Speaking at the rival How the Light Gets In festival, Lord Howard said Paxman kept asking the question because the following interviewee was late. "The next person due to turn up hadn't arrived, so the producer said to Paxman 'keep asking the question'.

"The reason I kept giving the answer I did was because I didn't want to lie. It was at the end of a long day, about an incident that had happened two years ago. Everything said about it had been crawled over in meticulous detail. And in my mind I didn't want to tell a lie. What I should have said was that I didn't remember."

Lord Howard added criticism of Paxman's aggressive style. "Paxman has reputedly said how the mindset when he starts any interview, is 'what is this lying bastard going to tell me'. I don't think that is appropriate." In fact, it was The Times's Louis Heren, who first coined that line. Though Paxman quoted it, he denies going into interviews with that mindset.

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