This issue started in March 2012, when Google combined around 70 different privacy policies across its services into a single policy, stating they did so to provide "a simpler, more intuitive Google experience."
Thus far, Google continues to insist that it is operating within European laws and has given no indication it is willing to compromise. In addition, the ICO is in uncharted territory as it has never before handled a dispute with an international corporate that possess the financial clout of Google.
The next step is that the ICU will issue an enforcement notice. If Google subsequently defies or appeals the enforcement, the case would then become a matter for the UK courts to tackle. Google could then risk unlimited fines (not just the ICO maximum of £500,000).