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Although both James and Rupert Murdoch were expected to be giving evidence this week with regard to the phone hacking scandal, the whole process has taken a decidedly different tack. The fallout from James’ testimony on Tuesday resulted in the resignation of a top Parliamentary aide on Wednesday and a growing brouhaha inside Prime Minister David Cameron’s government. Culture Secretary Jeremy Hunt’s aide, Adam Smith, resigned after emails read on Tuesday showed a possibly inappropriate relationship between the minister’s office and James Murdoch during the BSkyB bid process. Hunt asked Lord Justice Brian Leveson to move up his scheduled testimony date but Leveson said yesterday he was going to continue with his planned timetable. Hunt will appear before the inquiry in May while Cameron and Tony Blair are expected in May or June. Also, the FSA, Britain’s equivalent to the SEC, is understood to be examining whether the email exchanges constitute market abuse. Rupert Murdoch’s testimony on Wednesday was squarely focused on his relationship to politicians. Day two of his evidence will begin soon and should last for a couple of hours this morning. It’s possible they’ll get to the phone hacking scandal today. All times below are UK local time.

10:09 Counsel Robert Jay asks Murdoch about David Yelland, editor of The Sun in the late 1990s. Yelland once said in an interview that “all Murdoch editors go on a journey where they end up agreeing with everything Rupert says…You look at the world through Rupert’s eyes.”

Murdoch: “I understand what you’re saying but I think it’s nonsense and should be taken in the context of Yeland’s strange autobiography,” in which he admits he was drunk most of the time at The Sun.

Murdoch: “I certainly do take part in the policy decisions of The Sun, I think that’s my job.”

Murdoch: “Generally speaking, the issues that we get interested in and fight for you’ll find them in The Sun and you’ll find that I would agree with most of them if not all.

10:12 Jay turns to Murdoch’s relationship with politicians and asks if they would know what Murdoch is thinking or his views by knowing him over time.

“I really only see very little of them. I’m only in this country less than 10% of my time…And, I think they know my philosophy, yes.”

10:19 Murdoch is asked about UK Shadow Schools Secretary Michael Gove.

Murdoch says he likes to get to know lots of different people. He then diverts to talk of his passion for education.

Jay moves onto the BSkyB bid and how Murdoch has denied any discussions with David Cameron on the bid.

Murdoch isn’t sure if he’s ever met Jeremy Hunt but says he never discussed the bid with him.

He’s asked if he met with Hunt in 2009. “I don’t think so, why would I?” He says he has no memory of it and has never spoken on the phone with him.

Jay asks if his son has ever spoken to him about Hunt.

Murdoch says no, but James told him when Cameron removed Vince Cable’s responsibilities in the BSkyB bid and that Hunt had taken over.

Jay says Murdoch must have asked James what kind of person Hunt was. Murdoch says he had no reason to because he didn’t see the BSkyB deal as a political issue.

10:23 Jay says Murdoch would presumably have been concerned by the delay in the bid in 2011.

No it was a very big move by the company, but in 2011 Murdoch says he was more concerned about the unfolding hacking scandal.

Jay: Did your son give you a progress report on how the bid was getting on?

Murdoch: Yes, but not on a daily or maybe even weekly basis.

Murdoch says he doesn’t remember conversations. He delegated the situation to James. But he says of course they did talk.

Jay asks if Murdoch was aware of a lobby on his side in the bid. Murdoch says he’s only just learned recently of Fred Michel’s so-called lobbying.

Murdoch says he didn’t see anything wrong in Michel’s activities upon learning of the recently disclosed emails between Michel and Hunt’s office. He says he was surprised it had gone on so long and was surprised by his competitors lobbying “and of course they never would have succeeded if it hadn’t coincided with the hacking scandal.”

10:29 Murdoch says he hasn’t read the 163 pages of emails between Michel and Hunt’s office.

Jay asks if Murdoch assumed Hunt was on News Corp’s side. Murdoch says no, he thought any minister would deal with the bid in an unbiased way. He adds he was surprised by Cable’s war on Murdoch stance.

Jay: Is it true the longer it went on the higher the price would be?

Murdoch says no but the longer the bid process went on, the greedier the hedge funds got.

Jay asks if were it not for the hacking scandal, Murdoch would have gotten the remaining shares in BSkyB.

Murdoch says yes the hacking scandal was in the way. He refers to the Milly Dowler disclosure and says News Corp has been limited in its own inquiries because the police have had certain elements under lock and key.

10:34 Jay turns to phone hacking. Jay reads from a statement by Murdoch that says Murdoch believes he may have learned of the arrest of Clive Goodman in 2006 in a phone call with Les Hinton.

Murdoch says “we appointed a special law firm” to aide with the police after the charging of Goodman and the police then said they were closing the file.

Jay says the evidence the law firm produced only one document and that News International were being obstructive. Are you shocked, Jay asks Murdoch.

Murdoch says it shocks him “deeply.”

10:40 Jay presses on the rogue reporter issue and says that News International would know to what extent this “cancer” was prevalent.

Murdoch says the executives were misinformed and shielded from what was going on there. “There’s no question in my mind that maybe even the editor, but certainly beyond that, someone took charge of a cover-up which we were victim to and I regret…We did take steps after the conviction and resignation of Mr Coulson. A new editor was appointed with specific instructions to find out what was going on…but never reported back there was more hacking than we’d been told.”

He says a law firm Harbottle & Lewis were hired and given a brief. He says he hasn’t gone through the whole file they received but from having tasted it, “I cannot understand a law firm reading that and not ringing the chief executive of a company and saying, ‘hey, you’ve got big problems’.”

He’s asked about a cover-up and Murdoch says he thinks it came from inside News Of The World and a drinking pal, friend of the journalists who was a lawyer “who forbade people to go and report to Mrs Brooks or to James.”

10:45 Murdoch is asked if he approved the hiring of Colin Myler as editor at News Of The World. Murdoch says Les Hinton suggested him to Murdoch and he said yes. Murdoch says it wouldn’t have been his choice but Hinton felt he could rely on him to report back.

Jay asks if Murdoch felt Myler was a “weak individual” and not the right person.

Murdoch says that’s an exaggeration. He says he had hoped Myler would do what he was asked to do but during the last 7 months of Hinton’s regime, Myler did not report back to him.

After the Clive Goodman incident Coulson resigned as editor of News Of The World and Myler came in. Murdoch says he relied on Hinton to make sure Myler was fulfilling his brief to find out “what the hell was going on.”

Jay asks if it wasn’t an issue that required Murdoch’s personal attention. Murdoch says, in hindsight I said “the buck stops with me, so I would have to agree with you.”

10:54 Murdoch makes a slight jab at Jay, apologizes and Jay says he’s very thick-skinned so there’s no offfense taken.

Leveson interjects that amongst all Murdoch’s interests it’s clear that the newspapers are one of the businesses he is most passionate about.

“Quite apart from the commercial side of it, you would really want to know as you yourself put it, what the hell was going on. Print ink was running through your veins…this wasn’t just a commercial interest…this was the very core of your being, so that’s why you’re being asked, were you not intensely concerned about what was going on?”

Murdoch says some papers are closer to his hear than others, “but I also have to say that I failed.”

Leveson says he appreciates that but that it still doesn’t answer the question if he really did try to understand what was going on or whether he felt it was over and let’s just move on.

Murdoch says he thinks when the police said they were satisfied on the rogue reporter issue and closed their file, if he’d been in Hinton’s place he would have done the same thing.

Leveson presses: This wasn’t just a question of a reporter doing what he did with a private detective. “I wonder whether you wouldn’t want to know what was the atmosphere or the climate within your newspaper that had encouraged the reporter to think that this was a correct way to proceed.”

Murdoch says he probably never paid enough attention to the News Of The World.

He’s asked about the famous Guardian article in 2009 that said hacking was more widespread. Murdoch says he was made aware of it but at the same time the police disowned it.

11:03 Murdoch is asked about the Gordon Taylor settlement of about $1 million. He is asked if he was shocked at the amount. He says he found out after the fact and was surprised.

Murdoch says James told him he was given a short time and two boxes and had to decide which one to tick. One relatively low and one infinitely higher. Murdoch first says James says he was advised to tick the lower box but corrects himself. “He was pretty inexperienced at the time and the legal counsel and editor put it to him in a short time.”

Now they’re talking about reputational risk. Jay asks if James spoke to Murdoch about that. Murdoch says no.

Jay: Did you suspect the one rogue reporter defense was wearing a bit thin?

Murdoch: No because the article was instantly disowned by the police and we chose to take the word of the police over the word of The Guardian.

11:14 Jay has been asked by the Metropolitan Police to clarify that they never said they were satisfied it was a rogue reporter. Jay says it was News International’s assertion.

He reads from an NI statement that it had carried out its own investigation. Murdoch says there was a committee made up of Myler, corporate counsel and human resources and all relied on what police had said. “Too much, as it turned out.”

Jay: Were it not for The Guardian do you accept the phone hacking story would never have entered the public domain?

Murdoch: “I don’t know.”

Jay presses that the major source on hacking was never anything that News International did.

Murdoch: “No, we looked but we didn’t find anything.”

11:21 In 2009 after the Guardian article, Jay says Murdoch was on Fox Business News and wouldn’t talk about the hacking story.

Murdoch says he was in Sun Valley and didn’t know enough about it to talk about it.

Jay is asking about a comment Murdoch made on camera when crossing a street with Rebekah Brooks and the conversation turns to the behavior of the press, paparazzi, etc. It then circles back to the comment he made. When asked what his main concern was, he said “this one” and pointed to Brooks. Murdoch says he was trying to help her maintain her self-confidence.

Now Jay is asking about the “brand” definition of the News Of The World.

11:27 Murdoch says when he took it over it shifted from covering the courts to become a campaigning title.

Jay says part of the brand became salacious gossip, tittle tattle, celebrities, etc.

Murdoch says celebrities, yes but salacious gossip, no.

Jay reads old comments from John Major lamenting the shifting of the press to serious tabloidism. Murdoch says he doesn’t agree the News Of The World fell into the category.

11:36 Jay turns to a letter from Max Mosley to Murdoch. In the letter he referred to blackmail being perpetrated by journalists at the News Of The World as found in a judgment by Justice Eady. Eady ordered the paper to pay damages to Mosley after it ran the so-called Nazi Orgy story about Mosley. Murdoch says favors amongst journalists happen all the time.

Leveson asks Murdoch: Do you say it is appropriate to say to a member of the public we have a photograph of you, we can do this 2 ways: We can unpixelate your photo or alternatively we’ll give you some money and you tell us the inside story?

Leveson says he finds the approach disturbing and agrees it sounds like a form of blackmail. He asks Murdoch’s help to know if this is the culture and the practice of the press.

Murdoch says it’s a common thing in life to say if you scratch my back, I’ll scratch yours. But, he says he hasn’t read the judgment so he can’t really comment.

Leveson asks if Murdoch would look at the judgment and let him know later his feelings.

Jay asks if the scratching of backs extends to politicians. Murdoch says no, he never asks politicians for anything. “That was a nice twist,” Murdoch says to Jay.

11:47 Murdoch says he is under strict instruction not to say the following but goes ahead anyway:

“I was really shocked by the statement of Mr (Paul) Dacre (editor of the Daily Mail) the other day that his editorial policy is driven by commercial interests. It was the most unethical thing I’ve read in a long time and what’s more from the most surprsing source.”

Jay says Dacre was saying it with regard to the alliance against the BSkyB bid.

Jay: Does maintaining ehtical standards cost money?

Murdoch: No, failure to maintain ethical standards can be very expensive.

Murdoch says the scandal has cost them hundreds of millions of dollars.

Jay reads from a quote by Andrew Neil that reads: Of course Murdoch can’t be held for every individual act, but you create a climate in which its OK to do certain things.

Murdoch doesn’t think Neil knows what he’s talking about.

11:55 Murdoch says all emails have been scoured at all his newspaper holdings across the world.

Jay asks about Murdoch’s self-regulation. He turns to the time that Piers Morgan was editor of the News Of The World in the 90s. Morgan says Murdoch called him into his office and apologized for supporting the press complaints commission in a case against a story Morgan authorized. Morgan’s diaries say Murdoch told him they had to act the way they did because otherwise there might have been some new privacy laws. Murdoch says he’s not in favor of privacy laws.

Jay asks if Murdoch has ever instructed his editors to promote his other business interests.

Murdoch says there might be a promotion in the newspaper of the newspaper itself.

Murdoch says he does not tell journalists to promote “our TV channels or our TV shows or our films. You oughtta read the reviews of our Fox films in The New York Post. They’re killing us.”

Jay: Have you asked editors to pursue negative stories about competitors or rivals?

Murdoch: “No”

Jay: “Why did you close News Of The World rather than tough it out?”

Murdoch: When the Milly Dowler situation was first given huge publicity, “you could feel the blast coming in the window and I’ll say it succinctly, I panicked.”

12:11 Jay is talking about reputation and asks if Murdoch’s company “registered the risk of a compound commercial disaster of these proportions.”

Murdoch: We were always interested in people thinking well of our company and our newspapers.

Jay: Do you accept your company managed the legal risk by covering it up?

Murdoch: “There was no attempt at my level or several levels below me to cover it up. We set up inquiry after inquiry and employed legal firm after legal firm and perhaps we relied too much on the conclusions of the police.”

Murdoch says he appeared before the Parliamentary select committee in July last year “and i was asked if i was the person to clean it up and I pledged I would and I did. I have spent hundreds of milloins of dollars.”

Murdoch continues that anything frankly suspicious was passed to the police and that led to about a dozen midnight arrests “because of my pledge. Not because of the police, they did not ask us to go to that extent. We went way beyond what they asked us to do.”

He says, “We are a new company we have new rules we have new compliance officers.”

Jay asks if that demonstrates that the decision made last July to clean up was an over reaction because the reaction in 2006 looked more like a cover up?

Murdoch reiterates that they went beyond what the police asked…although this caused huge pain to families, “we did it and I’m gald we did it.”

Murdoch says back in 2007 he should have “thrown all the damn lawyers out of the room” and cross examined Clive Goodman himself and if he’d believed his widespread hacking claimes he would have “torn the place apart,” but that’s hindsight.

Jay is asking if Murdoch sees a link between legal and ethical misbehavior.

Yes, Murdoch says, but legal rules are devised to encourage ethical behavior although what Murdoch would call unethical behavior, like asking prime ministers for favors, would be unethical and not criminal in his estimation.

The inquiry is taking a short break.

12:25 Jay asks Murdoch to separate personal failures and systems failures. Jay says Murdoch’s personal failure is to not have insisted on systems in place to make sure the newspapers behaved appropriately especially in newspapers which took risks.

Murdoch: “We had systems, they proved inadequate.”

12:42 Jay is asking if the whole system was based on News Of The World editor Myler and legal counsel Tom Crone. Murdoch says yes.

Jay says if it’s not a big cost to implement new systems, was Murdoch not “swashbuckling” or “cavalier” in not doing so.

Murdoch says no.

They are talking about the Internet after Murdoch was asked to share his feelings about the future of regulation.

Murdoch calls it “disruptive.” He says “It’s too wide…whatever you do, you can’t regulate that…I think you have a danger of putting regulations in place that will mean there will be no press in 10 years to regulate…I believe newspapers are a huge benefit to society.”

Murdoch says the industry was on its knees in the UK and he helped to get the press on its feet. But, “it’s coming to an end as a result of these disruptive techonolgies.”

Murdoch is now talking about tablet papers and smartphones and saying there will be several billions in the world in short order. But he says he thinks newspapers will exist for about 20 more years.

On privacy he says, if you have my iPhone number you could find out wherever I was any time of the day anywhere in the world. As far of the press goes it’s only part of it. The techonolgy he says is used for industrial espionage and other things. “I think what can be done, certainly with the big players, it is perfectly possible and practial to say no pornography and no links to confidential intellectual property.” It’s not a Hollywood-Silicon Valley fight, he says.

That can be stopped, he says. “It would take legislation and I would encourage it, but it is a very very very serious thing.”

He talks about the BBC and his respect for it but says its online news is helping to hurt the newspaper business.

He says he doesn’t know that the newspapers can be saved, but that challenges must be met.

“When it comes to regulation, I just beg for some care. A varied press guarantees democracy.”

12:56 Leveson thanks Murdoch for his statements and says he believes care needs to be taken with regard to regulation. But, he insists that there has to be some mechanism to resolve problems in newsrooms – the police should be the last rung, he says, because they have other things to do.

There’s a discussion about online profitability then Leveson asks if Murdoch wants to expand on previous statements about the cost of the scandal.

“I have been through the whole of News Corporation…In London alone we’ve examined 300 million emails.” He only wants to add his regret for the distress caused to former and current employees.

Leveson wonders if he has anything to say about those who have legitimate complaints of having their privacy intruded upon.

Murdoch says “Oh yes,” that was illegal and unethical and “I regret it. It will be a blot on my reputation for the rest of my life.”

1:01 The lawyer repping Associated Newspapers tries to clarify something that Murdoch said earlier today regarding Paul Dacre. The lawyer is saying Murdoch based his comments on an email between Fred Michel and James Murdoch in which Michel says Dacre said The Daily Mail’s campaign with regard to BSkyB was driven by commercial reasons only.

The BSkyB comment spurs Murdoch to say, “I have given the British public 600 channels…I have contributed to plurality of the press…If I hadn’t beaten the old craft unions…there wouldn’t be such a good democratic press with all its faults and in television the same.”

1:13 Another counsel repping the National Union of Journalists asks about unethical treatment of journalists and allegations of bullying of staff. Murdoch says he’s never heard of it.

The counsel is pushing the idea that if the union were there it might help to prevent unethical behavior. Murdoch says he’s sure the people who were arrested were once members of the union.

1:17 Leveson thanks Murdoch for his evidence, and the inquiry breaks for the day.

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