The ascension of Mario Monti to the Italian prime ministership is remarkable for many reasons. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was politically toxic.

This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project. It is not just Mr Monti. The European Central Bank is under ex-Goldman management, and the investment bank's alumni hold sway in the corridors of power in almost every European nation.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as "the Vampire Squid", and now that its tentacles reach to the very top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts - and Goldman's interests are intricately tied up with the answer.

Simon Johnson, former International Monetary Fund economist, in his book 13 Bankers, argued against Goldman Sachs' influence in the US. "What you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions," he said.

This is The Goldman Sachs Project. Put simply, it is to hug governments close. Goldman is there to provide advice, and financing, for governments, to send its people into public service and to dangle lucrative jobs in front of people coming out of government; to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs' interest.

Mr Monti is one of Italy's most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman started to get interested in him. As commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman's bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury's committee on the banking and financial system.

With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank's two dozen-strong international advisers act as informal lobbyists for Goldman's interests with the politicians that regulate its work.

Other advisers include Otmar Issing, who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro. Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, attorney general of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman Goldman's UK-based broker-dealer arm, Goldman Sachs International.

Picking up these supremely well-connected policymakers on their way out of government is only one half of The Goldman Sachs Project. Sending Goldman alumni into government is the other half.

Like Mr Monti, Mario Draghi, who took over as president of the ECB on 1 November, has been in and out of government and in and out of Goldman. An economist by training, he was a member of the World Bank and managing director of the Italian Treasury before spending three years working as managing director of Goldman Sachs International between 2002 and 2005 - only to return to government as president of the Italian central bank.

Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn't be above 60 per cent of the size of the economy. Goldman traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time or at a later date.

When this issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi said he wasn't involved in the swaps deals either at the Italian Treasury or at Goldman.

Under the latest EU proposals, Greece is effectively going to default on its debt by asking creditors to take a "voluntary" haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full.

These creditors, of course, are the continent's big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus.

"My former colleagues at the IMF are running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?" says Simon Johnson. "It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008."

So certain is the financial elite that the banks will be bailed out that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year to lead a firm called MF Global. He placed a $6bn bet with the firm's money that Italian government bonds will not default. When the bet was revealed last month, just as investors were losing confidence in Italian bonds, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed. But Mr Corzine might yet be proved right on his bet.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman, which has written over $2trn of insurance on peripheral eurozone countries' debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under.

This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse. Shared illusions, perhaps? Who would dare test it?

Goldman Sachs bank conquers the new Europe

A senior judge is to be brought in to investigate a series of highly controversial tax deals which cost the Exchequer millions of pounds in lost revenue.

The judge is expected to be given the power to examine the private accounts of Goldman Sachs and Vodafone to establish whether senior inspectors wrongly "let them off" multi-million-pound tax bills.

The National Audit Office, which is supervising the inquiry, is also considering whether to examine the tax affairs of other big companies to establish whether HMRC officials routinely signed off deals which underestimated the true liabilities of the companies.

The move comes after the House of Commons Public Accounts Committee (PAC) accused Britain's top Revenue official, Dave Hartnett, of misleading Parliament following a deal with Goldman Sachs that allowed the US investment bank to avoid more than £10m in tax penalties. It also accused officials of allowing Vodafone to pay just £1.25bn in a tax dispute with the Government, despite a potential tax bill of £8bn.

http://www.independent.co.uk/news/business/news/judge-to-examine-goldman-sachs-tax-deal-6265835.html

The tax office faced accusations of double standards last night over plans to target thousands of small businesses with spot checks on their paperwork - despite letting big companies such as Goldman Sachs off millions of pounds in tax. Officials from HM Revenue and Customs with powers to fine small businesses intend to inspect up to 20,000 firms to see if they have adequate proof of expenses and income dating back years in a new drive set to begin in April.

The move was condemned by Conservative backbenchers and business groups who warned it risked bankrupting some businesses and harming the already depressed economy.

They said it went against a pledge by ministers to cut red tape for companies during the recession and added the arbitrary nature of the unannounced checks amounted to "harassment". "Despite the worsening economy, HMRC is launching this scheme regardless of the consequences," said John Walker, national chairman of the Federation of Small Businesses.

"We have spoken to HMRC and expressed our concerns about this a number of times. But as far as they and ministers are concerned it is a policy aim to make this happen.

"There is a huge difference between the rhetoric of the Government about helping small businesses and what it is doing in reality." Under the plans, up to 20,000 small businesses including restaurants, builders, manufacturers and IT companies will face spot checks on their record keeping.

They will be expected to show receipts for income and expenditure dating back years to back up their tax returns. Those who are unable to do so will face fines of up to £3,000 which business leaders warn could be enough to push some firms into insolvency.

During a pilot exercise last year, 12 per cent of the businesses examined were judged to have record-keeping practices that were significantly sub-standard. If the same percentage was found to be at fault in the full checks total fines could reach £15m. While inspectors have room for leniency, the federation says that revenue officials take a far tougher line with firms unable to employ high-powered accountants to argue their case than with large companies.

The plan is also causing considerable unease among Conservative backbenchers - who believe it undermines David Cameron and George Osborne's pledges to support small businesses.

Priti Patel, the Conservative MP for Witham, said around 80 per cent of her constituents worked in small and medium-sized enterprises and she had dealt with numerous examples of what she described as "harassment" by HMRC.

"This is the persecution of small businesses at a time when they are already facing a very, very hard time," she said.

"The attitude of HMRC to small businesses is frankly disgraceful when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities. It seems as though HMRC sees small businesses as low-lying fruit to meet their targets. That kind of persecution is outrageous."

Anne-Marie Morris, the Conservative MP for Newton Abbot, a member of the all-party group on micro-businesses, said she was increasingly concerned about HMRC's attitude to small businesses.

"There used to be a different ethos at the revenue where they would look on minor errors sympathetically, but that appears to no longer be the case, and very small businesses are being treated in the same way as larger ones with better resources.

"It is simply not practical for a company employing just a few people to spend huge sections of their day on administration as well as getting their firm off the ground. This is particularly true when you're coming out of a recession."

Last night a spokesman for HMRC said the plans would be subject to a review following problems with the pilot project and played down the threat of fines. "Following consultation with representative bodies, HMRC has started a detailed review of the business records checks project," they said.

"HMRC recognises that the pilots have caused considerable concern to the tax profession, and that the project would have benefited from more detailed consultation with tax professionals at an earlier stage.

"In the light of these concerns, HMRC will undertake a review of the project, in consultation with the professional and representative bodies.

"The purpose of the review is to consider the overall aims of business records checks, examine whether the current approach is the best way of achieving the policy objectives, and identify what changes are needed to ensure that the objectives are achieved.

"In the meantime, HMRC will continue with a limited number of business records check pilots, and the results will be evaluated as part of the review."

But the shadow Business Secretary Chuka Umunna said: "As the Public Accounts Committee has highlighted recently, there are real concerns over the way HMRC has reached settlements with some large firms, as well as the accountability and transparency of its decision-making.

"The committee said that HMRC has left itself open to suspicion that relationships with some companies are 'too cosy' and that small firms had not been given the same service as larger firms. These concerns must be addressed immediately to restore trust.

"It is crucial that HMRC act in a fair and proportionate way with both large and small firms, particularly given the pressures which many businesses are facing at present. It needs to work alongside small firms, most of which do not have a dedicated finance officer, in helping ensure they meet their tax obligations in full."

Small business praise... big business favours

Recently there has been a deluge of political rhetoric about the importance of small business, while the Revenue has been accused of letting the big boys off lightly...

"There are a range of bodies responsible for inspection (of small businesses). And they need to undergo this cultural change too. They need to understand their job is to make your life easier, not harder." - Nick Clegg, October 2011

"We want to make the UK the best place to start, finance and grow a business." - George Osborne, September 2011

* The Permanent Secretary of HMRC, David Hartnett, supervised and signed off a deal that saved Goldman Sachs around £10m in tax. The revelation only came to light after a whistle-blower exposed the "sweetheart" deal.

* Vodafone settled a long-running dispute with the revenue by paying £1.25bn, but a Commons committee heard allegations the tax bill should have been £6bn or more. The committee suspect there may be other questionable deals among £25bn of outstanding tax disputes.

* A review of the Pay as You Earn system for collecting tax concluded nearly six million people had been paying the wrong amount, with about 1.4 million facing demands for, on average, almost £1,500 each.

Case study: 'This is an extra burden I could really do without'

Daniel Price set up his personalised baby gifts company My1styears.com in 2010 from a tiny office that housed his small workforce as well as equipment. Six months later he expanded into a separate distribution centre in Mill Hill, north London

"This move by the tax man is very unfair on small firms because it's going to send the cost of doing business through the roof.

"We only have four directors and employ six staff and do everything we can to follow the tax office's rules, but this is just an extra burden that will be a lot more work for us. It will also take up more of our time, which is certainly going to be a hindrance to growth.

"There's more stress involved too - the ultimate fine might not be huge but it would affect our bottom line. We're providing jobs and paying tax to the UK economy at a time when everyone is struggling, but the government doesn't seem to appreciate that.

"Meanwhile big corporates like Goldman Sachs and Vodafone can spend money on avoiding tax. David Cameron spoke today about the UK seeing more start ups to boost growth - but that's difficult when we've got all these burdens imposed on us.

http://www.independent.co.uk/news/uk/home-news/crackdown-on-small-firms-a-blind-eye-for-big-business-6284205.html

Britain's two state-owned banks have hired eight separate lobbying and public affairs companies at a cost of hundreds of thousands of pounds a year, The Independent has learnt.

The Royal Bank of Scotland (RBS), which is 83 per cent owned by taxpayers, paid six firms last year despite losing more than £750m in six months. It also employs its own team of internal corporate lobbyists to influence ministers.

Lloyds Banking Group, which is 41 per cent owned by the Government, retained two lobbying companies. It reported £3.3bn of pre-tax losses in the six months to June. Neither RBS nor Lloyds would specify exactly what the firms were doing on their behalf, but the extent of their use will fuel concerns that the banks are using taxpayers' money in an attempt to water down banking reforms and planned caps on executive pay.

It comes despite a ban by ministers on other recipients of taxpayers' money hiring public affairs firms to lobby other arms of Government.

The Communities Secretary, Eric Pickles, has said: "Taxpayer-funded campaigns conducted by private lobbying firms mean... public policy is weakened and public discourse becomes a soundbite battle. Lobbyists are not subject to Freedom of Information or transparency rules. Democracy is at its strongest when it is cost-efficient, open and transparent, and lobbying on public money undermines it." He has also said that taxpayers did not want public money spent on "loudhailer propaganda".

Last night, Downing Street sources said it "seemed ridiculous" for banks such as RBS and Lloyds to be spending shareholder money on PR consultants. They insisted, however, that doing so did not buy influence with ministers. "These firms might try and lobby us to do things but that does not mean that we do them," one No 10 source said.

Tamasin Cabe, of the Alliance for Lobbying Transparency, described the revelations as "offensive" while Labour said they were "outrageous".

"It is hard to explain how a state-owned company should need lobbyists to lobby the state," said Jon Trickett, the shadow Cabinet Office minister. "They should be spending their money providing better services for customers.

The records of banks' hirings are contained in client records kept by the public affairs industry. RBS retained the services of APCO, Finsbury, Bell Pottinger, Open Road and Lansons in 2010. Ulster Bank, which is wholly owned by RBS, employed Cherton Enterprise. Lloyds hired Burson Marsteller and College Public Policy - although the second contract has now been replaced with a contract with the firm Hanover.

RBS's use of PR companies is far greater than its private banking competitors. HSBC and Barclays each employ two firms, while Santander retains three.

RBS unveiled plans yesterday to pay the head of its troubled investment banking division £4.3m in April despite the company's share price falling by half in a year.

Last month, The Independent revealed that senior bank executives met or telephoned Treasury ministers nine times in the weeks after Sir John Vickers published his proposals on how to prevent another banking crisis. The Chancellor, George Osborne, personally met the RBS chief executive, Stephen Hester, and Antonio Horta-Osorio of Lloyds on separate occasions in the days before the release of the Vickers report. Robert Jenkins, a member of the new super-regulator, the Financial Policy Committee, has also accused banks of implementing a "lobbying strategy that exploits misunderstanding and fear" to thwart banking reform.

Later this month, the Government is due to bring forward plans to regulate the lobbying industry. At the moment, most large agencies sign up to a voluntary register detailing who they work for, but there is no record of internal lobbyists employed by companies or industry groups, or who they are lobbying.

Agencies are also under no compunction to publish details of all their clients - and there is a suspicion that the names of some clients are being withheld from public scrutiny. However, it is uncertain how far the Government will go because it has been under pressure from the lobbying industry itself to water down the proposals. A spokeswoman for RBS said it was unable to provide specific details of what its lobbyists did or how much they were paid. But she added: "Like most large companies, RBS and its subsidiaries employ consultants for communications advice. We do not, however, employ any third parties to lobby politicians or government on our behalf.

"We have not conducted any campaigning against regulatory reform and when we have had concerns on the proposals, we have stated these publicly and on the record."

A spokesperson for Lloyds said: "As a majority-privately-owned company, all of our public affairs activities are completely in line with the codes and requirements that apply to all FTSE-listed companies."

Taxpayers Foot The Bill For Loss-Making Banks' Lobbying

The Business Interview: Margareta Pagano meets the entrepreneur aiming to restore the British public's flagging trust in banks through Virgin Money's £747m takeover of Northern Rock.

The room is bright and white, there are plush red velvet sofas to lounge on and newspapers to read, a grand piano that plays by itself, fresh flowers, free coffee and pastries and spaces to work on your laptop. And then there are the loos, sparkling clean and snazzy, with expensive soap and hand-creams.

At first, it has the feel of a boutique hotel, but then Sir Richard Branson strides into the room with pretty girls in air-hostess style uniforms at his side for a photo-shoot - and you'd be forgiven for thinking it's an airport lounge. But there are a few tell-tale signs; an ATM machine hidden in the corner and a couple of bowler hats in the window, but otherwise no clues that this is a bank.

We're in the Virgin Money Lounge on Castle Street in Norwich, and none of this has been staged for Sir Richard's flying visit. It's one of two Virgin branches that have been designed to be the banks of the future - all part of his plan to make banking "better again", and fun too. There's another Lounge like this in Edinburgh, and others will open this year in Manchester, Newcastle and London, and then in another 10 cities next year.

As well as places to do all the boring banking stuff, these lounges will also be open to rest and work in and for local community groups to hold meetings or exhibitions - this one is already a favourite for four local coppers coming in for coffee every morning. So,safe as well.

The media-to-space tycoon was in Norwich yesterday as part of a whistle-stop tour of his money empire following the £747m takeover of Northern Rock which went through last week; but at times it seemed more like a US-style primary or royal visit as the public, local MPs and dignitaries turned up to listen to him celebrate the takeover, even asking for his signature. In Newcastle earlier in the week even footballers at Newcastle United, where Virgin has taken over sponsorship from Northern Rock, queued for his autograph.

It was also a peek of the future, too - as Sir Richard told his audience, after taking over his first train company, the West Coast mainline, he took a sledgehammer to smash the glass window of the ticket office: "Customers need to see and talk to people properly, not through glass." Now he claims he will do the same for banking; all those horrible glass partitions between the customers and the tellers will go.

Later, on the train back to London, Sir Richard told me how he plans to turn banking on its head: "Bankers have been discredited and they have run their businesses badly. It was their greed that could so easily have caused the greatest crash since 1929 if governments hadn't stepped in. The public is disillusioned with their banks. We want to restore that trust and the Virgin brand can do that. We've done it in other industries - not all have worked - but most have and we will do it again."

And it's by being more transparent. "At the moment the big boys offer some products online - but not in the branches and vice versa; this is terrible for older people who maybe don't want to be online. Any product we offer will be for everyone, and stay the same. Transparent and fair, that's our aim."

So far the plan is for the 75 Northern Rock branches to become Virgin ones by the end of the year; and all will have some elements from the Lounge. By 2013, there will be Virgin Money current accounts as well as new products across the spectrum like the successful Virgin One account. Then Sir Richard wants to move into student loans, small business lending and micro-finance for would-be entrepreneurs as well as grow the credit card business.

With Northern Rock, Virgin now has 4 million customers, making it the UK's seventh biggest bank. "That's a great platform for us to expand and we aim to double that to 8 million over the next few years and to increase the branches to more than 200."

Virgin has between 3 and 4 per cent of the personal banking market but has ambitions to more than double that over the next few years. It's still flea bite when compared to, say Lloyds, which has 30 per cent of the market, and the big high street five, which have 80per cent of the market between.

Virgin Money has been growing steadily since the business was first launched in 1995 - a joint venture with Norwich Union in Norwich. Over the last four years profit before tax has grown from £24m in 2007 to £36.4m in 2010 and rose substantially again last year.

With Rock under its belt, Virgin Money is now worth around a billion, taking Sir Richard's own personal fortune - he owns 48 per cent - to around £3bn. He isn't a director - not because he didn't want to take the FSA exams, as some have suggested, or because of his tax status, but because he never takes day-to-day control of any of the Virgin businesses: "I learnt very young that the most important thing in business is to be good at delegation and employ the best executives."

Instead, he says, what he gives the Virgin brand is his high profile: "What's good about having me involved personally is that the public can see there is someone who is accountable - so I'm the one who gets all the comments and complaints, which is good feed back for us." So tweeting is Sir Richard's secret weapon - he tweets at least three times a day - and has 2.5 million followers.

Now he wants that "fantastic halo" he gets from going into space, or hob-nobbing with people like Nelson Mandela, to show that business can be a force for good, and specifically to reduce unemployment, particularly among the young. "One way is to make it less expensive for companies to introduce to job-sharing or flexi-time. At Virgin we have 60,000 employees in total, and I reckon about 5,000 of them would job-share."

Giving the young access to micro-finance to start their own businesses is another idea he wants to push. "University students get loans - why shouldn't those who don't go to university or college? Many people only want small loans like £500 or £1,000. I started with just £300 - given to me by my mother after she sold a necklace."

Sir Richard Branson: 'Bankers Were Greedy, They're Discredited. With Me, People Can See Who's Accountable'