Just 1pc of our exports of financial and business services, including insurance, go to Russia. The widespread view that the City of London is now so dependent on Russian cash that it would capsize in the absence of massive inflows from Vladimir Putin's henchmen is hopelessly wrong

There can be no doubt that any trade war between Russia and the West would have painful economic consequences for the UK. Jobs would be lost and some companies hit badly; economies always lose out from economic dislocation and deglobalisation. But the widespread view that the City of London is now so dependent on Russian cash that it would capsize in the absence of massive inflows from Vladimir Putin’s henchmen is hopelessly wrong. Yes, financiers have benefited from Russian money; but its importance to UK Plc has been grossly exaggerated.

The facts are clear. Just 1pc of our exports of financial and business services, including insurance, go to Russia. By contrast, markets such as Singapore, Australia, China/Hong Kong and Canada each account for 2pc, according to the Office for National Statistics’ Pink Book, with the US worth 28pc and the EU 37pc.

Even more remarkably, the $19.1bn exposure of UK banks to Russia is lower than that of the French, Italian or German banking system, in both cash terms and even more so as a percentage of assets, as a superb, eye-opening analysis by Open Europe reveals. The reason is straightforward: when it comes to overall trade, other European economies are far more involved with Russia than we are, and financing and commerce go hand in hand.

The biggest driver is energy: close to a quarter of Europe’s gas is sourced in Russia, with Germany and Italy especially dependent. Britain doesn’t buy any. Around 16pc of Russian exports are sold to the Netherlands (though much of that is then re-shipped), 7pc each to China, Germany and Italy, but only 3pc goes to Britain. Russia buys 20pc of its imports from China, 15pc from Germany, 6pc each from France and Japan but only 3pc from the UK.

Russian international investments in London are worth £27bn, which sounds like a lot but in fact represents a mere 0.5pc of the overall value of all European-owned assets in the British capital. The real value is greater, as a result of cash recycled through the British Virgin Islands and Cyprus. But even when accounting for this effect Russian holdings remain surprisingly unimportant.

Of course, some UK multinationals have large Russian subsidiaries, and some sectors of the City are more dependent on Russian business than others. Russian firms borrowed $400bn in London in the past nine years; City banks probably made $1.2bn a year in fees as a result. No fewer than 70 Russian firms have used the London Stock Exchange to raise equity, including global depositary receipts; no other country has used the UK markets as much. Russian equities tend to be highly traded, which is good for financial intermediaries. A lot of business has already been lost, with investment banking revenues from Russia down by more than two-thirds in the first quarter of the year. But while all of this will be painful, it won’t destroy the City, which fortunately is hugely diversified.

What about housing? Many of the statistics on Russian buyers also include those of neighbouring ex-Soviet countries, and purchases from expats (often anti-Putin dissidents) who’ve moved permanently to the UK. Even so, Russians make up less than 5pc of purchases of elite London property, and less than 1pc of the total. Prices would fall a bit in their absence, but so what?

It is also often argued that Russian children are keeping many private schools going, and that may be true in a handful of institutions. But the reality is that of 4.8pc of non-British pupils whose parents live abroad, just 10.4pc are Russian, according to the lndependent Schools’ Council. Even when UK-based Russian kids are added into the mix, less than 1pc of the revenues of the UK’s independent school system are derived from Russia.

Paradoxically, Britain’s manufacturing heartlands could be affected more badly than the City by any trade war. Around 9.5pc of the UK’s car exports went to Russia last year.

For the sake of many thousands of British jobs, it is vital that our response to Russian expansionism in Ukraine and elsewhere be properly targeted against Vladimir Putin’s shameless cronies, and not directed at innocent Russian bystanders. But it helps nobody to exaggerate the UK economy’s dependence on Russian cash.
Banking disruption

There are two ways that competition in banking can be increased. The first is to try and break up existing banks, a clumsy, highly politicised top-down process. The second, far slower but more profound way, is to encourage the bottom-up entry of completely new players into the market. We have seen two very different instances of this latter approach this week.

On the one hand, PayPal, the US payments giant, is entering the loans market, in a potentially revolutionary move. It will start to offer working capital to existing business customers. On the other, Metro Bank, a new firm that is bucking the trend by driving its expansion through the opening of new branches, saw its deposits surge. Tesco has also finally entered the current account market, peer-to-peer lending is continuing to surge ahead and the forces of disruption are starting to build in earnest across the industry.

The Government has an important role to play by removing artificial barriers to entry: untested new banks must no longer be penalised in terms of the amount of capital they have to hold, and the payment system must no longer discriminate against new entrants. But if the banking system ends up looking very different in 10 years’ time, as I’m certain that it will, the reason will be successful entrepreneurial and technological innovation, not top-down diktats from Whitehall or Brussels.
The good fight

Every so often, an economist makes a real difference by helping to change the climate of ideas. John Blundell, who has just died aged just 62, was one such intellectual warrior. Steeped in the ideas of F A Hayek and Milton Friedman, he ran the Institute of Economic Affairs in London for many years and played a key, behind-the-scenes role in the re-emergence of free-market ideas. He fought for lower taxes, competitive capitalism, monetary reform and personal freedom. He shall be missed.