It is 1928 Berlin. Fascism is a mere glimmer in Germany's eye and the mood in the Weimar Republic is one of decadence and decay. No, this musical is not Cabaret, but a 1989 Broadway show set in one of Berlin's finest resting houses. Everyone who stays here is rich. Except the clever conceit of Luther Davis's book, for which George Forrest and Robert Wright, and later Maury Yeston, wrote a muscular score, is that nearly all the guests are in desperate need of funds.

Time is running out for the young baron whose gangster creditors are closing in; for the proud prima ballerina of a certain age and for the desperate industrialist who is about to lose control of his company. The exception in this litany of desperation is the fatally ill Jewish bookkeeper Otto, who wants his last days to be lived in the lap of luxury and, being about to die, is the only one who has no money worries at all.

The music is a heady, evocative mix of Germanic pomp and Charleston-esque fizz, played by a tight eight-piece band squeezed into a gallery above the Playhouse's stage. And it's terrifically sung, too.

This is yet another Southwark production that shows the depth of performing talent we have in this country when it comes to musical theatre. As the self-styled siren, Flaemmchen, a secretary determined to be a Hollywood film star, the terrific Victoria Serra is brimful of flourish and flamboyance. Valerie Cutko also stands out as the tragically loyal companion and dresser to Christine Grimandi's ageing ballerina.

And yet the real story here is, well, the show's story. Or rather the way it's told. The opening number, A Grand Parade, miraculously establishes not only period and place but character, too. And the subtle efficiency with which each character's narrative is weaved into the show's bigger theme is a lesson in writing.

Just one gripe. And it really is a small one, relating to one element of Otto's character. Specifically, his yarmulke. Now, I don't say that it is an indefensible decision for George Rae, who is terrific as the gauche Otto, to opt for the prop.

But wearing it raises a slew of hoary old questions about how Jews are depicted to British audiences on screen and stage. Questions that really should be as redundant as the rightly despised gollywog, which, just to be clear, is much more offensive than anything here. And, to be even clearer, I'm not accusing anyone of being as crass as the racist doll.

But - deep breath - did Rae or this terrific show's director, Thom Southerland, wonder whether a Jew from Europe's most assimilated community would go around with his head covered at all times?

Did the thought not occur that the old equation used by British (as opposed to American) directors and actors when it comes to Jewish characters - ie Jew equals yarmulke -is about as anachronistic as old-school British sitcoms based on jokes about foreign accents?

Do they know any Jews? If so, how many of them wear yarmulkes? Do they worry that British audiences are so unreconstructed that for them a Jew isn't really Jewish unless he's got his head covered?

When Otto cartwheels with joi de vivre across the stage having just danced with alluring Flaemmchen, how do they prevent the offending kippah (not one of those knitted clipped-on yarmulkes but an ornate jobby with gold thread generally used by Jews who don't wear kippahs all the time) from flying off like a frisbee?

You could, at a stretch, argue that Otto is returning to his religious roots as he nears death. Or you could take the better adjusted option, ignore the yarmulke and enjoy the show.