In 2018, Minouche (or, more formally, Nemat) Shafik wrote in an article entitled 'A New Social Contract', published by the International Monetary Fund, of which she had been a deputy managing director, but which was written in her role as director of the London School of Economics and Political Science at that time, that:
Intergenerational fairness and social mobility are issues that will take time to address; in the near term, some degree of redistribution is essential. Tax systems have become less progressive as advanced economies lowered corporate taxes and top rates on personal income in the 1980s and 1990s and raised value-added taxes. This is especially problematic given widening inequality in market incomes. And because wealth has grown even more unequal than income, we should explore taxing wealth such as inheritance, land, and real estate.
You might expect me to agree with her. However, appearances can be deceptive.
Subsequent to writing this article, Minouche Shafik was appointed as a life peer in 2020. It is also worth noting that she was a deputy director of the Bank of England from 2014 to 2017, had also served as a vice president at the World Bank, and subsequently was head of Columbia University during the 2024 Columbia University protests, which it is widely thought that she mishandled poorly.
In the aftermath of leaving Columbia, she has been advising the UK government and has now been appointed as Keir Starmer's new chief economic adviser.
This is not a minor announcement. In that role, she will help shape Rachel Reeves's autumn budget because she will be the point of contact between Reeves, as Chancellor, and Keir Starmer, as Prime Minister. The role is particularly important because it is known that he has so little understanding of this issue. More broadly, she will also anchor Number 10's entire approach to the economy. In that case, it is worth looking at what her appointment really means.
At first glance, Shafik looks like a break with the recent past. As noted, she has said that wealth needs to be taxed more heavily.
She has pointed out that the link between hard work and success is, in her words, “pernicious.”
She has also argued for redistribution and what is sometimes called pre-distribution to address intergenerational unfairness.
She has supported the idea of property and inheritance taxes.
All appears to be promising, and is precisely why the Daily Telegraph wasted no time in accusing her of wanting to “punish success.”
That claim is, of course, absurd. Taxing unearned gains is not an attack on effort. No one who inherits a large estate or rides the wave of a property boom has worked harder than the nurse or the care worker who rents their home and leaves little behind when they die. In fact, the absence of effective taxation on wealth entrenches the opposite of a meritocracy: it creates a system where the already wealthy become wealthier without effort, while those who work the hardest are denied a chance to create economic security for themselves and their families. The Telegraph appears to be confused about what success might mean in that case, and as a result, the right-wing caricature of Shafik is misplaced.
The reality is that Shafik is not a radical intent on dismantling the market economy. She is, instead, a mainstream technocrat who believes, as many within the OECD, IMF and World Bank now do, that some form of wealth tax is inevitable if social contracts are to survive. To present her as some kind of dangerous revolutionary is to distort her record beyond recognition.
That does not mean, however, that Shafik's appointment offers the change this country needs. The reality is that her entire professional life has been spent within institutions that define the neoliberal consensus: the World Bank, the IMF, the UK's Department for International Development, and the Bank of England. She has risen to the highest levels in those organisations. She has most definitely learned to speak their language, and that language is one of fiscal rules, debt sustainability, independent central banks, and above all, the permanent need to reassure financial markets, which all these organisations appear to live in perpetual fear of.
When Shafik spoke of a “new social contract,” it was most definitely within those boundaries. She might have proposed more generous education and training schemes, portable pensions, and stronger safety nets, but she did so based on the assumption that the government must first of all demonstrate its fiscal credibility, in other words, presuming that social reform is always conditional on first reassuring the bond markets.
And this is where the real problem with her appointment lies. As I keep pointing out, the government of the UK cannot run out of sterling. Its spending capacity is not limited by money, but by the real resources available in the economy: people, skills, technology, and natural assets. These are the only genuine constraints on government spending. It is only if they run out, meaning that demand exceeds what the economy can deliver, that prices can rise. That is the pinch-point where policy has to be managed.
Shafik does not start from this reality. Instead, she accepts the Treasury's claim that there is a “black hole” in the public finances, which must be filled with tax increases or spending cuts. Within that framework, wealth taxes look like a way of plugging the gap. But taxation is not about raising money to fund government. It is about shaping distribution, controlling inflationary pressures, and closing down rent-seeking. By failing to make that shift, Shafik remains trapped inside a paradigm that has been failing Britain for four decades, and this matters.
First, it means that her apparently bold ideas are in practice much less radical than they seem. Wealth taxes are proposed not as part of a wider plan to re-engineer the economy around fairness and sustainability, but as adjustments that might restore fiscal credibility. That makes them vulnerable to being watered down, delayed, or abandoned whenever the bond markets demand.
Second, it means that redistribution is being talked about while the engines of inequality are left running. Shafik advocates predistribution, i.e. investing in people so that inequality is less extreme before taxes and transfers are applied. That is sensible. But unless the rents extracted from land, property, energy, and finance are confronted directly, predistribution will leak back into private profit. You can train people all you like, but if they spend their lives funnelling their wages into inflated rents, excessive interest payments, or inflated bills charged by monopolies granted power by the state, little changes.
Third, it means that the enforcement infrastructure of taxes is largely ignored. Talking about taxing wealth is politically bold. Making it happen requires plumbing. It requires the measures described in the Taxing Wealth Report 2024, and additionally, it requires banks to report data on individual and corporate bank balances and deposits to HMRC automatically. It also requires directors to be held liable when companies phoenix away their tax bills. And it requires comprehensive registers of land, property, and wealth as well as enhanced action against tax havens and secrecy jurisdictions. Without these things, new wealth taxes will be little more than statements of intent. Shafik has said little about any of them.
Fourth, her economic worldview continues to give primacy to the Bank of England. She has been deputy governor there, and accepts the 1990s model of independent central banks, inflation targeting, and fiscal rules. That model has delivered decades of underinvestment and social failure in the UK. It guarantees that fiscal policy is always subordinated to the task of reassuring markets. A new settlement would mean the Treasury and Bank working together with a dual mandate to deliver full employment and price stability, with the Bank being the most definite junior partner. That is not part of Shafik's thinking.
Fifth, her global perspective also remains cautious. On aid and development, she has argued for stronger multilateralism, but always within the framework of debt sustainability. That is the language of the IMF, not of those seeking to re-engineer the global financial order so that poorer countries can avoid crises, deliver public services, and tackle climate breakdown without being trapped by creditors.
Put bluntly, Shafik's worldview is one of soft neoliberalism. It accepts the fiscal myths of scarcity. It accepts the primacy of financial markets. It offers modest redistribution without structural reform. It promises investment in people, but without confronting the rents that drain their wages away. And it proposes wealth taxes without the enforcement infrastructure to make them unavoidable.
That is why her appointment is no answer to the real challenges Britain faces. We need investment in housing, health, education, and climate transition. We need to rebuild public capacity and public ownership. We need to tax rents out of the economy, not just shuffle them through the tax system. We need to tell the truth that the government of the UK cannot run out of money, and that taxation is not about funding spending but about reshaping society. None of that is on offer from Minouche Shafik.
The Daily Telegraph is wrong to smear her as a dangerous radical. She is nothing of the sort. But that is precisely the problem. Britain is being offered cautious technocracy dressed up as bold reform. What we need is a new macroeconomic settlement: one that starts from the recognition that money is not scarce, but resources are; one that uses taxation to tackle inequality, rents, and inflation, not to fund spending; and one that restores democracy as the final arbiter of economic policy, not the bond market.
Shafik's appointment suggests Labour has no intention of delivering that. Instead, it might present modest wealth taxes within a neoliberal frame as if they were transformational. That may fool some for a while, but it will not solve the UK's economic crisis.
And meanwhile, fascism marches on, aided and abetted by the fact that nothing will really be done to tackle the justified grievances of people in this country.
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You have to be stark raving mad to believe that you can as a society of human beings ever “balance the books” if as a society you are using money. Money is by definition a process not a bunch of things! Money is a “credit loop” which means it’s created and cancelled, the later for obvious reasons to avoid inflationary pressures. The very use of the word “loop” means an active process something going round and round. People and organisations are constantly setting up these “loops” via the agencies of licenced banks and government who have the legal power to create credit. These self-same agencies are also involved in applying the cancellation process.
What most members of the UK society also fail to understand is these continuous “loops” are constantly subject to demand leakages and impedances. Examples of these are private sector saving, companies and government failing to pay an adequate Living Wage, and profit uncertainty means private companies rarely avail themselves of all real resources they theoretically could. Given these leakages and impedances competent politicians and economists would recognise that optimising the use of real resources for the UK means having a “variable credit loop” which allows additional money to be created to make up for the demand loss. In practical terms this means government and therefore the last thing it should be doing is looking for “black holes” in order to “balance the books”!
“ Money is a “credit loop” which means it’s created and cancelled, the later for obvious reasons to avoid inflationary pressure“.
Ok I’m beginning to get my head round this idea along with ‘spend and tax not tax and spend” etc.
Is it possible to have a simple real life example showing the actual creation of money which got spent on something and then the subsequent taxation where the money gets cancelled?
I’ll try…
Her “radicalism” seems to be summed up in the phrase:
“the peasants are getting a bit restless, throw them a bone or two (and put a tax on pitchforks)”.
Thank you, Richard.
I was wondering how long before Shafik landed (a gig) here.
One detects the hand of Shafik’s friends, Balls and Cooper. They were also influential in having her former husband, Mohammed el Erian, appointed to a Cambridge college and often on the airwaves.
Both have been and are still under consideration to become governor.
They all part of this deracinated and technocratic elite. The rising powers outside the west ignore them.
Rachel Reeves is apparently attempting to rescue Thames Water, without nationalising it: writing to Thames Water to explain that; “The government recognises the seriousness of the situation facing Thames Water … Our position remains that the company should find a sustainable, market-based solution to the current situation” (The Times, ‘Rachel Reeves backs market-led deal to save Thames Water’, 1st September, 2025).
It is noted in the article that Thames Water has an estimated £17.7Bn net debt (£3Bn is now being paid at 9.75% interest). I understand Thames Water serves 4m households, and has debt interest costs of around £700m. It has also just been fined £122m for various failures.
Scottish Water is a publicly owned, nationalised company. It serves 2.6m households across the whole geography of Scotland. It appears to have around £4.87Bn in debt (from the Scottish government), from the 2024/5 accounts (overview, p.50, and p.114 for total debt); revenue was £1.58bn, operating surplus was £215m, the cost of servicing its debt was £153m, and the pre-tax profit was £62m (this is taken from the ‘Scottish Water Regulated’ accounts for households and businesses; the consolidated accounts include ‘business stream’, which is operations in non-regulated ‘competitive’ markets in Scotland and England). Consolidated revenue is £2Bn, and pre-tax profit £85m, p.114). The debt is spent on infrastructure, and re-investment. Scottish Water is by no means perfect, and is sniped at constantly by neoliberals, implying it is all as bad as England, or worse. In spite of the constant complaints from the fact free ‘free-market’, private monopoly dogmatists, in Scotland the public is not questioning Scottish Water’s public status; and I suspect neither the Scottish Conservatives, Labour – or even Reform – will dare peddle the idea in the 2026 Holyrood elections. I wish they would try……
Comparisons between Thames Water and Scottish Water, in the real world? You do the maths.
Thanks
With Darren Jones becoming the PM’s chief secretary, James Murray, chair of the HMRC board (unclear if he still will be) becomes chief secretary to the Treasury and his position as exchequer secretary is taken by Dan Tomlinson MP, economist, PPE graduate, ex-Treasury official and possibly most interestingly ex-Resolution Foundation, whose former boss Torsten Bell MP has just become Rachel Reeves’s right-hand man. It doesn’t look like much chsnge
It sounds like a reverse takeover by The Resolution Foundation.
I met Murray several times when he was first a shadow minister. I hope he has learned a lot since then.
Go to the Resolution Foundation and nothing about money creation as a search term. Type in “QE” and nothing! A bunch of amateurs, despite their economic degrees, who never get to the heart of the problem (understanding money creation and its effects) is all that can be said. Now the Starmer government thinks they’re the bee’s knees!
Basic research often pays dividends.
Before fat fingers struck, I meant to add there doesn’t look like much change is in the offing with these appointments.
Agreed
I used to teach maths. Some students cottoned on to the elements of a new topic quickly. Others struggled but got there. A few gave up almost immediately. When there was time to work closely with this last group, an incident of failure in their early education sometimes emerged. They had felt crushed and had tried, ever after, to avoid the subject – or else to pretend and bluff.
The Taxing Wealth Report is so compelling that it is hard to believe that notable people like Minouche Shafiq, as well as Reeves, Starmer and even Andrew Bailey, the Governor of the Bank of England, have spent time studying it.
Have they, I wonder, behaved like the students referred to above, and avoided even looking at it?
Of course these people have many excellent qualities and abilities. But understanding explanations like those in Taxing Wealth Report might not be among them.
Why would they bother with it if, for years, they have been convinced, by a series of people who claimed to be experts, that ‘the government has no money of its own’, and ‘that taxation is bad’, especially if aimed at wealthy people like themselves?
Gary Stevenson has an exceptional ability to anticipate how people will choose to buy or sell on the financial markets. He also cares passionately about ordinary people. Bravo for him. Maybe he too would benefit from further assistance.
Sorry to suggest more work for you Richard, but I think an even simpler, shorter, basic, exposition of the Taxing Wealth Report is needed. A concise but irresistible demolition of neoliberal economics might also help.
How long is short, Joe?
There’s a much bigger argument underlying Richard’s Taxing Wealth Report namely that in being a “credit loop” (money) provider a government actually creates unemployment because of the “draining” function (taxation) aspect of that “loop”:-
https://zenodo.org/records/15789842
It’s also not recognised that private sector “fiddling” in not paying a Living Wage increases the “draining function” of the government’s use of the “credit loop” its money creation ability. Here’s an extract from the above paper used to support its Job Guarantee version of a Living Wage:-
“Eliminates systemic labour exploitation: private operations whose business model relies upon socialising the cost of underpaid labour are eliminated from the market, freeing space for competitors whose business model depends upon productive capital investment.”
Whether you agree with the Job Guarantee or not the “socialisation” of market capitalist profit is an issue that badly needs tackling.
Joe Burlington says: “Have they, I wonder, behaved like the students referred to above, and avoided even looking at it?”
In the latter part of Harold Wilson’s premiership, Tony Benn, who was then Secretary of State for Industry, produced a document which proposed a plan to invest in and revitalise British industry. Wilson Wrote on it
“I haven’t read, don’t propose to, but I disagree with it.”
That sumamrises what became the neoliberal mindset.
@ Robert B
For far too long we’ve had economically and monetarily clueless Labour governments except for a brief blip after the Second World War. Since then there’s been:-
No realisation that the government legally creates money from nothing.
No realisation the “drain” side (taxation) of that government creation forces people to get an income to pay taxes even if that taxation is only indirect like VAT.
No realisation that market capitalism rarely avails itself of all real resources because of profit uncertainty therefore will never be the sole provider of income to pay taxes.
No realisation that there’s demand leakage when government securities are issued.
No realisation that some UK companies don’t pay a Living Wage and so their profits are “socialised” by government top-up benefits either physical (social housing for example) or monetary.
No realisation that under market capitalism many companies move jobs about globally to countries that cheat their own citizens in terms of government provision of public goods and services and therefore keep export costs low to achieve price point in global markets.
During my time at the World Bank (I was an industry Specialist; not a financial analyst), Minouche Shafik was one of a generation of World Bank Vice Presidents who attained that rank by being skilful players of the political game, rather than one of the top professionals in her field. She has undoubted talents in the politics of managing people, but too often it is assumed that there is a high degree of professional competence in subsequent appointments (such as the BoE stint) that simply isn’t justified.
Shafik is another one of these people whose career is too closely aligned with neoliberalism for her ever to look beyond that doctrine.
To be absolutely fair, even if she did have any doubts about her understanding of economics, what profit for her in admitting it and changing course?
It would require immense moral courage to admit such a thing.
I doubt that are many people in academia who have such courage in this day and age
Rudyard Kipling’s famous poem’If’, deals very well with such a dilemma, concluding that such courage will give a person, ‘the earth, and all that’s in it’.
Agreed
You asked; How long is short?
I don’t know but this is what has occurred to me:
The essence of why neoliberal beliefs do not work (1 or 2 tight paragraphs)
Then 3 or 4 very short paragraphs on how your approach is valid, and necessary and why taxing wealth could reduce pernicious inequality and make a dramatic difference to people’s lives as well as to the UK economy …
Each paragraph to be headed by a short sentence (perhaps shorter than a sentence) in bold.
So that if readers only read the bold they will be converted or maybe fascinated.
All spaced out on one side of a sheet of A4 – with the intention that busy MPs (and others) are certainly interested – and hopefully convinced or at least half convinced. If it works, they will want to read sheet 2.
This can have detail, examples, references or simply a convincing story that make people want to follow it all up …
and possibly one or two suggested next steps
If you choose to edit the result above until it’s ‘right’, you might send your version as the covering instruction – along with your existing short version of the Taxing Wealth Report to Chat GPT. Perhaps send the long version of TWR as well.
Maybe the response would be a good basis for what you might want to publish.
Joe
I am working on it.
But, so far, I am not persudaded by what I have produced.
I will share when it is useful.
Richard
I find it very telling that you (apparently without irony) state that she “… will be the point of contact between Reeves as Chancellor and Starmer as Prime Minister”
The dis functionality of this Government seems now to be taken for granted as normal by all of us.
Even in the dying days of the Blair/Brown relationship I don’t remember them needing a go between!
From the days of kitchen cabinet (Thatcher) and sofa government (Blair), there is always a coterie/clique around the PM, to prevent us getting our constitutional entitlement of Cabinet Government.
Nowadays the whole thing has got too big for the kitchen or sofa, and has taken over the entire Cabinet Office, which has “growed like Topsy”, changed from a civil service machine to an entirely political one, dominated by ambitious warring SPADS, and become a sort of “shadow government” in active opposition/resistance to each department in Whitehall.
Sometimes the PM uses it to enforce their will. Sometimes others use it to fight like rats in a sack and control the PM (like now).
To those of us brought up on old fashioned constitutional niceties like parliament, cabinet, and civil service, the current out of control, constantly changing mess that is Downing St./Cabinet Office is unrecognisable. The one thing it isn’t, is good government.
[…] only did he appoint a new, profoundly neoliberal policy adviser over the weekend, but he has now done a minor cabinet reshuffle, which means that Darren Jones has […]
Richard,
I suspect that like Prime Ministers before him Starmer is playing politics. He wants leverage over the Chancellor and HMT.
This Shafik appointment is probably designed to help secure his position.
The other moves I am less convinced I understand. Resolution Foundation take over is an interesting idea. Helps give a nice coating to the changes for Labour Party members etc.
We need a fundamental change in thinking at BoE and HMT and a seperate Dept for Economic Affairs. Thatchers team at No.11 Lawson/Howe did make some significant appointments from a monetarist standpoint. So I’m optimistic real changes can be made but this Shafik appointment does not feel like a start in that direction.
My head was bobbing up and down in agreement with every word, as it does with almost everything you write. But there is a little voice in the back of my head that keeps reminding me that the government may be able to create pounds, but it can’t create dollars, euros, renminbi, etc. In all our arguments about revitalising the economy with full employment, should we not be paying greater attention to the trade deficit, particularly goods?
Whilst finance dominates the UK we will have a trade deficit
I totally get that. It seems to me that the trade deficit weakens the government’s ability to create money and invest in the economy and full employment if too much of the money created ends up being sent to Asia in return for electric cars, etc. I have just had a Xerox colour laser printer delivered, made in China. The basics of MMT simply will struggle to work if a country is running a large trade deficit.
Which brings us back to your article. I doubt Minouche Shafic has a clue how to address that problem.
You may wish to read this.
https://eprints.whiterose.ac.uk/id/eprint/143275/1/Baker%20The-UKs-Finance-Curse-Costs-and-Processes%20final.pdf
I will make a video on this issue soon, where soon probably means within a fortnight.
[…] only did he appoint a new, profoundly neoliberal policy adviser over the weekend, but he has now done a minor cabinet reshuffle, which means that Darren Jones has […]