The real threat to the UK comes not from the credit crunch, but Russia

There's so much Russian money around in Britain these days that we've become rather complacent about it. So long as the money is used to buy football clubs or Belgravia property, we don't bother to ask too much where the money has come from. We just assume it is better spent here than elsewhere.

But not everyone shares this benign view of the influx of Russian billionaires setting up shop in London. Talking to one of the UK's senior financial regulators last week, I was startled by the vehemence of his concern at the menace posed by some of the unsavoury characters trying to break into the City. The arrival of a new breed of Russian banker in London worried him far more than the flaws in the financial system revealed by the subprime fiasco and the credit crunch. His argument was simple. We have a healthy financial market in London based on respect for the law and for the most part mutual trust. Some of these Russians he did not name names do not have respect for the law and cannot be trusted. If they succeed in bringing their business practices with them to London, the integrity of the whole market will be threatened, at huge cost to everyone.

He is not alone in this view. A powerful new book by Economist East European correspondent Edward Lucas, The New Cold War: How the Kremlin Menaces both Russia and the West

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, makes exactly the same point on a geopolitical scale. Lucas's book which I recommend tells the story of how Vladimir Putin and his former KGB cronies brought stability and prosperity to Russia, but in the process stamped out political freedoms and turned Russia back into an authoritarian state in which corruption is endemic, property rights are routinely abused and opponents are murdered or thrown into psychiatric hospitals. Lucas believes like the UK regulator that we are not taking the threat posed by lawless, resurgent Russian nationalism anything like seriously enough.

Russia's key challenge to the West concerns energy security (Russia will soon be responsible for more than 50% of European gas supplies). We have already seen in Russia's treatment of Ukraine, Estonia and Georgia that it is prepared to hold countries to ransom to secure its political objectives. Yet Europe is doing little to try to reduce its reliance on Russian gas.

So Russia is picking off European countries such as Germany and Italy one by one with sweetheart deals and job offers to former political leaders, while plans for the much-needed Nabucco pipeline that could bring gas to Europe from Iran and Azerbaijan are so bogged down in political in-fighting that odds are it will never be built.

One of the reasons Russia is able to get away with this policy of divide and rule is that there is now a powerful European business lobby that has a vested interest in not provoking the Russian bear. This business lobby is so busy making huge amounts of money from Russia that it is prepared to overlook the most egregious treatment of its own members. Only this week, Russia publicly stepped up the pressure on BP-TNK, the oil giant's Russian joint venture. That follows last year's expropriation of Shell's oil operations in Sakhalin. Yet the business community turns a blind eye.

Europe indeed the West urgently needs to stand up to Russia before it is too late. Already Russia is threatening former Soviet satellites such as the Baltic republics and Georgia. This time the threat is not socialism but lawlessness and authoritarianism. Few countries have as much at stake in this struggle as the UK. Not only are we one of the most reliant countries in Europe on gas for our energy needs, but we also have the integrity of our financial services industry to protect.

In time, the City can recover from the credit crunch easily enough. But it can't survive London becoming a haven for gangsters. If taking a tough line means foregoing some of the easy money that the gangsters bring with them, so be it.

The only way for taxes is up

Another week, another looming tax U-turn by the government. Alistair Darling has been dropping hints that he is preparing a climbdown on the increases in vehicle excise duty announced in the budget in March. That follows previous backpedalling over capital gains tax, non-dom tax, the 10p tax band and corporation tax. It is tempting to say that another U-turn would destroy Labour's economic credibility but it has no credibility. That much is clear from inflation-linked bonds, which are currently indicating that the market believes the UK authorities cannot keep inflation under control.

That looks a reasonable assumption. Last week, it emerged that UK government borrowing is already at 43% of GDP well above the ceiling of 40% set by Gordon Brown under his Golden Rule. When Brown's government is finally gone someone is going to have to clear up this mess. There has been much excited talk recently of a new political consensus in favour of tax cuts. But with the public finances in disarray, the only way for taxes is up.

Simon Nixon is executive editor of Breakingviews.com.