"The 'big society' is an idea, not a plan." So said Francis Maude, and he is right. It is an airy thought, and the smile on the face of the shrinking state. Maude, minister for the Cabinet Office and paymaster general, says this government will be more radical than Thatcher's – and so it is proving: governments are defined not by words but by how they distribute their budgets.

David Cameron promises encouragement to charity, volunteering and social enterprise. Little platoons will re-engage people with their communities. Every party agrees: a society of isolated individuals is no society at all. The fading of trade union, church, political party and friendly society that once brought (some) local people together has left a gap. Labour tried hard to find political solutions to this lack of geographical community. People feel an emptiness in modern affluence that keeps them behind their own front doors with their own entertainments. But there is also misplaced nostalgia for selected elements of a bygone era, viewed through rose-tinted lenses. These institutions were pre-welfare state necessities, threadbare self-help when there was nothing else. The Cameron/Maude vision looks like warmed over Victorianism, sepia-coloured with a little 1950s national service for the idle young. It is certainly a pre-trade union idea that volunteers will tend park flowerbeds and man museums as the state retreats.

So is the big society a romantic Tory aspiration or cynical political sophistry? Follow the money and the story unfolds. Far from finding themselves cherished, charities are taking a hard hit from the first round of cuts. The new Office for Civil Society (OCS), replacing Labour's Office of the Third Sector, has cut £11m from existing organisations that encourage volunteering. The youth volunteering charity V lost a further £8m and probably 90 jobs with the abolition of its schools programme. Why cut experienced organisations and staff who know how to do the job?

Coalition rhetoric denounces Labour for its big state takeover of voluntarism: it's a straight lie. Blair and Brown channelled more money and effort than ever into the voluntary sector, which doubled in value on their watch. Was that due to a sudden spasm of generosity from the burgeoning wealthy? No. Stephen Bubb, head of the Association of Chief Executives of Voluntary Organisations, points out that 70% of their extra funds came from the state.

Most charities dare not protest on the record, afraid for their surviving grants, but in private they are aghast. News pours in of local authorities already putting charities first in the firing line. Bubb says that Croydon is just one council that has cut over 60% of its voluntary sector contracts – for the elderly, drug addicts, the homeless and more. Forget "efficiency savings": these may be the most effective services, but councils need to cut what they can. Cutting their own staff means paying redundancy; cutting contracts means the charities takes the redundancy hit. A major provider of children's services, Family Action, says there will be cuts in services it provides for Sure Start, despite promises it was protected. Family Action's contracts for assessing families for the courts in care and custody cases are also being terminated as councils take the work back in-house, doubling the caseloads of already overworked social workers. Leeds health authority has just cut £500,000 from services provided by Mind. The National Council for Voluntary Organisations (NCVO) warns many charities will go to the wall, as most have no or low reserves.

The Directory of Social Change's research on the contracts between state and voluntary sector reveals shocking terms. Small print includes: the authority can amend or terminate (the contract) any time unilaterally with no negotiation of terms and one-sided unlimited compensation. Meanwhile, the Charity Commission, helping vulnerable charities with advice, including on unfair contracts, has lost 60 jobs, with 5% of funding cut on top.

The state is cutting support for the voluntary sector just when donations, legacies and investments earnings are down. Consider the inefficient time charities spend on lengthy applications to myriad sources of funds: of a million applications received by charitable foundations, two thirds are unsuccessful. Meanwhile, no one doubts demand will rise. Take homelessness – when housing benefit is cut shortly, an estimated 750,000 people will have to leave their private rented accommodation, often in vain search of something cheaper.

As part of the big society, Cameron has committed to training up to 5,000 new community workers. Citizens UK is one of the groups promised a contract. But what will they be training these activists to do? To campaign for a living wage and to galvanise the local community to demand more – from the state. That's what community groups usually do, and as services shrivel and die it will be easier than usual to summon up indignation.

The big society is a good idea: there is nothing rightwing about little platoons acting locally. The voluntary sector's good impact on state services is incalculable, showing how the old, children, the disabled, mentally ill and the dying should be treated with compassion, creating beacon services for the state to follow. One of the dismal voids in post-communist society was the discovery there was no tradition of charity or volunteering to build on. But, contrary to endless Tory jibes about Labour's "soviet tractor factory target", voluntarism is deep-dyed in Labour's roots.

For all the "broken Britain" breast–beating, we are already quite good at volunteering – 13.5 million people volunteer at least once a month, more than in most equivalent countries. But it doesn't come from nowhere: the £35bn voluntary sector is 40% sustained by state support – more than in most countries – so shrinking the state means shrinking the charitable sector, too. Evidence from this first small sample of ferocious cuts to come warns that charities will take the first and hardest hits.

Charities are an essential buffer between state and market and a beacon for innovation, but the idea that a sector that is just 2.3% of the workforce can replace the welfare state is not so much fanciful as downright dishonest. Whenever you hear talk of the big society, just follow the money.