At ease in a party gripped by conviction, the chancellor spoke with candour: "Beneath the sound and fury of daily debate a quiet revolution is taking place." In the throes of economic turmoil, here is "the most radical and reforming period of government this country has seen for a generation … I am the chancellor who is cutting the size of government faster than anyone in modern times." And so he is.

There is a nonchalance about George Osborne, that grim smirk suggesting he doesn't much care about present calamities so long as he drives on with that great state-cutting purpose. At the conference his party's thinktanks, cabals and caucuses agonise in one fringe after another over "How to Win": no government has increased its share of the vote in modern times, let alone by an impossible 6% – and David Cameron doesn't look to them like the man to do it. They may be wrong: Labour certainly isn't counting any chickens.

For Osborne, legacy is what matters now. He would not "wake up like Tony Blair did, after a decade in power and discover he didn't achieve anything", he said. Finding it easy to uproot much that Labour did, their focus now is on what they leave behind after just one term. That means permanent change to the state, not just taking a wrecking ball to its fabric, but planting anti-state knotweed in the national mind. "We're Conservatives, not anarchists" he felt the need to say – but these demolitionists are conserving as little as they can. In the NHS, schools admissions, Whitehall, council services or social security, all of it is, he said, "a state that had become too expensive to pay for".

What does the public make of a chancellor in deep crisis proclaiming "the economy is healing"? His economic policy has collapsed, debt is rising and he has missed his deficit targets by miles. Yet with devil-may-care breeziness he announced more of the same: tighten the screw, cut deeper. He was blush-free about his budget's avoidable absurdities and accidents. The Whitehall axe has left the Treasury greatly depleted in numbers and skills and state finances in the perilous hands of inexperienced officials. Expect the great train bid disaster to be replicated often, with too many people lacking the expertise to write complex contracts as slabs of the state are outsourced. Wait for over 200 clinical commissioning groups in the NHS to go live: most have weak capacity to sign good contracts to cover their entire population. But this chancellor and cabinet seem alarmingly unconcerned, so long as the ideology is right.

Not a voice is raised here against a further £10bn of benefit cuts. Morally and ideologically right, this is seen as the undisputed winning ticket. Pollsters say people want more of it and opposition from Nick Clegg and Iain Duncan Smith has evaporated. Though hitting the poorest hardest, Osborne calls it fair. "Where is the fairness for the shift-worker leaving home in the dark hours of the early morning who looks up at the closed blinds of their next door neighbour sleeping off a life on benefits?" Yet again, he asserted that those in work get less than the idlers: not true, as sleight of hand with his benefit cap compares an out-of-work family's benefits with a working household's pay, conveniently leaving out all the credits and benefits the working family gets. But few will ever know.

This despicable and mendacious bullying may not work indefinitely. Osborne never mentioned the unemployed, not once; no word about six million people desperately looking for full-time jobs, with more long-term workless than since Thatcher's day. In Birmingham this week when Jaguar Land Rover advertised 1,100 jobs, over 20,000 applied. Are all the 19,000 who were turned away slackers – or does the tide of opinion start to turn? Trying to reclaim "one nation" from Ed Miliband, it takes some nerve to say, "We're not going to get through this as a country if we set one group against another, if we divide, denounce and demonise."

Next April, Disability Living Allowance cuts will provide a shock when Paralympians campaign against people losing essential support. That month council tax benefit cuts also come in: soon poll tax bailiffs will try to collect from the poorest. Half the population will still be worse off in 2020 than they were pre-recession. Pitting the hard-up against the unemployed and the sick may not work for long.

This feels like a party lost to common sense. Unlike the old days, Labour people were exceedingly sensible, no one said anything mad, but here psalms to free-market extremism and chants about grinding down the feckless idle ring out at most fringes. They bark for a referendum on Europe, against gay marriage, against public workers, for tax cuts and for less state. At a serious event about infrastructure, a speaker from the Institute for Economic Affairs astonished the construction industry with his remedies: to avoid public spending on road building, rip out cycle and bus lanes. To solve train capacity, use standing-room only carriages.

Fondness for American Tea Party politics has led them to dip a toe into US culture war politics by stirring up the abortion issue. Some even echo Romney's notorious 47% gaffe by claiming half of the British population makes no net contribution to the state, once you take into account their benefits and use of education and health services. Calls for bonfires of everything from maternity leave to redundancy pay were echoed by Osborne with his plan to let employers offer up to £50,000 worth of shares to buy out workers' rights. They used to boast they were the party of hard-headed realism – but now they are lost in clouds of ideology. Ideas matter more than facts, so when Tories claim they will "get Britain building" by deregulating planning, Birmingham council replies it has 2,200 large projects with planning permission, but the construction firms lack investment funds. But Osborne never used the word growth.

A few voices urge David Cameron back towards the "compassion" he promised seven years ago: he may try, but it's far too late now. As every cabinet minister vies with one another for the nastiness crown – on Europe, immigration, Travellers' sites, crime, shoot-to-kill burglars and another £10bn in benefit cuts, compassion is nowhere to be found. Nastiness alone is never a winner – and Osborne offered no better future. The only gleam in his eye is to leave behind a state shrunk beyond recognition.