Yesterday, the Prime Minister of Great Britain gave a speech on the dangers of Islamist terrorism, calling for an end to the "passive tolerance" of Islamic "extremists" and explicitly yoking this new "muscular liberalism" to his government's policy of withering the public sector. As Cameron spoke in Germany, thousands of members of the racist street protest movement the English Defence League (EDL) held their largest-ever rally declaring their opposition to the presence of Muslims in their communities.

According to eyewitnesses, EDL protesters were thrilled by Cameron's speech. At best, the timing was insensitive. At worst, it explicitly incorporates working-class unrest into the xenophobic posturing of the "war on terror".

A decade after the World Trade Centre attacks and six years after the last successful terrorist attack in Britain, the threat of Islamist terrorism is still the bogeyman under the bed, a frightening story to scare citizens into behaving. The "war on terror" is an ephemeral war, a perpetual war, a war that is fought in newspaper columns and over family dinner tables just as fiercely as it is fought in the mountains of Iraq and Afghanistan. It will be as enduring as its prosecutors deem useful, but it will never be won. That's the point. You can't fight terror and win, any more than you can fight a plume of smoke and win, and like smoke, if you run into terror wildly, clouds of it will get in your eyes and distracts you from the truth.

The war on terror will endure while our leaders find it profitable to divert public anxiety towards notional bearded extremists with rucksacks full of nitroglycerine and idiosyncratic interpretations of the Koran. Now, that ideological war is being reinvoked in British communities. Although the phrase has not been officially used since Barack Obama became President of the US, the "war on terror" casts a dark semantic shadow over global security strategy; the enemy is never any individual terrorist, always an ephemeral "ideology of extremism" whose borders are amorphous and whose solutions just happen to closely resemble whatever crackdowns on individual freedom and public investment successive neoliberal administrations are most keen to justify.

It is unequivocally tragic, of course, when innocent people die pointless, violent deaths at the hands of desperate butchers with hate in their hearts. When it comes to international policymaking, however, not all tragedies are equal. Since 2005, between six and thirteen times more British people have been killed by violent husbands than by Islamic terrorists, and yet at no point have the leaders of this country called for global consensus to end domestic violence and misogynist hate-crime. Indeed, as council spending cuts come into force, many local authorities will see their funding for refuges, battered women's shelters and domestic violence support services cut by up to 100 percent, with nothing to replace them but vague Tory assurances that kindly volunteers might step in. In Austerity Britain, lots of things can be left to the "big society", but not our commitment to prop up the paranoid entrenchment of the American military machine: Cameron's speech opened with explicit reassurance that Britain's Nato spending will remain top dollar.

Terrorism is not an everyday threat in this country. Most of us do not worry, when we get on public transport, that the bus or train is going to be blown up: we worry that if ticket prices keep rising, we won't be able to afford to get to work. When researchers turn up their findings on the common fears that beset ordinary people on a daily basis, it's still the everyday stuff: money, employment, the health of our relatives. This administration is uninterested in helping ordinary people tackle the real fears that come from being human in a world where profit is more important than people, but seems keen to divert public anxiety into aggressive posturing against the relatively abstract threat of Islamic extremism within our communities.

The Conservative-led government has done nothing to halt the escalation of far-right groups such as the English Defence League. Such groups are, in fact, profoundly useful to the centre-right. The torturous slide of Conservative rhetoric towards the lexicon of racist organisations has been noted by, among others, Nick Griffin, the leader of the British National Party, who told his followers in a newsletter: "the Prime Minister has at last admitted what the British National Party has said since the very beginning: multiculturalism encourages Islamic extremism. We forced [him] to tell the truth."

The demon being invoked here is terror at its most viscerally parochial: terror of the other, of foreigners and foreign ideas, of anyone who looks or speaks or prays differently. At root, this banal breed of suspicion taps into the more instinctive insecurities that beset all working people: our worries about loss of status and secure work, our fears that the communities upon which we rely might no longer be safe, supportive places to live and work. These fears are reasonable, but they have nothing to do with multiculturalism. They have everything to do with an economic programme that threatens to put millions out of work and destroy social housing.

David Cameron's government is doing less than nothing to allay these root-level fears. The Conservative-led administration, with its merciless programme of cuts to public spending and welfare and its plan to sell off the libraries, the schools and the forests, has given ordinary families far more to fear than the occasional misguided teenager with homemade explosives strapped to his nether regions.

The real ideological war going on in this country right now is not between terror and its antithesis, but between action and apathy. The notion of community solidarity, of local people standing together against the government's austerity programme, as they are this week with library and council sit-ins, is profoundly threatening to the political elite. Buried in the hawkish rhetoric of Cameron's attack on multiculturalism is an implicit imprecation to his grass-roots constituencies, one that serves the interests of a government trembling at the thought of popular uprising: fear thy neighbour.