Believe the pundits, and the remedy for the Conservatives is simple. They need a new leader. Some new faces around the cabinet table.Some flashy new policies. And, everyone agrees, they need to stop flicking V-signs at business. But nothing too radical. An oil change, a spray job, and they’ll be motoring again.

Political wisdom is often little more than sonorous simple-mindedness, and this is a prime example. Judging by Philip Hammond’s speech to the Tory faithful on Monday, the chancellor doesn’t buy it, either. Humming through his lines was an anxiety about the threat posed by Jeremy Corbyn. Whatever their press releases say, cabinet ministers are stumbling through the Tory conference in Birmingham worried that Labour’s arguments about Britain’s broken economy are hitting home. And with good reason.

Opportunity? Aspiration? Britons aren’t buying it. In Labour’s private polling conducted over the past week, just over half – 52% – of respondents believe that things in Britain are getting worse. What worried the vast majority were absolute basics: paying for groceries, fuel bills and keeping a roof over their heads. And asked whether “the government has a clear plan to try to improve the lives of people across Britain”, only 29% agreed.

The Tories sense this widespread pessimism – they just haven’t a clue what to do about it. Party activists in Birmingham this week willingly bet that this conference is Theresa May’s last as leader while voicing no confidence that whoever succeeds her will do any better.

“We are a dead party,” says Nick Denys, a councillor from Hillingdon and head of policy for the Tory Workers group, whose other members include Ruth Davidson and Robert Halfon. “Even our membership is literally dying. What do we have to offer families of working age?” And that is a key question. Because the problems facing this party are fundamental – and they have been made by Tories.

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Smack-bang in the middle of a crisis of capitalism, May has positioned the Tories as the stalwarts of capitalism. While the country cries out for more money, she carries on cutting spending. Such astounding blockheadedness is compounded when the prime minister who told a struggling nurse last year that “there is no magic money tree” boasts this week of her plans for a £120m festival of Brexit. You can see the damage done by May right outside the conference hall where she will speak on Wednesday. West Midlands mayor Andy Street says the cuts “have gone far enough”; local police say they are close to “breaking point”. Big West Midlands businesses such as the carmaker Jaguar Land Rover warn of the harm that would be done by a no-deal Brexit.

Underlying this is the deep-rooted problem that the programme pushed by the Conservatives since the 1980s simply hasn’t worked for the very people who used to vote for them. Margaret Thatcher promised a shareholder democracy – but individual ownership of shares is below where it was when she began her privatisations. She pledged a country of homeowners – but home ownership in England has fallen to its lowest point since 1985.

What Tory policies have done is concentrate wealth, power and opportunity in ever-fewer hands – thus cannibalising their voter base. Party grandees sometimes talk about an electoral ladder from youthful firebrand to grey-haired Conservatism. You get a job, you buy a house, get into middle management – and as you get more of a stake in society you become more reactionary. Or so the theory goes. Except every one of those rungs is now broken. Graduates can’t get graduate-level jobs. Settling down is almost impossibly expensive. No wonder the natural age of Labour voters keeps rising.

To see how this works in practice, ignore the autocued remarks made in Birmingham this week and think about another speech, made three years ago by a woman in the audience for Question Time. Perhaps you remember Michelle Dorrell: dressed in a grey jacket and minding her Ps and Qs, she suddenly exploded at the then-cabinet minister Amber Rudd for defending cuts in tax credits.

Dorrell told Rudd that she’d voted Tory six months earlier – but now she was furious. “I work bloody hard for my money to provide for my children … and you’re going to take it away from me and them. I can hardly afford the rent, the bills and you’re going to take more from me.” And audience members in Dover started chanting at Rudd: “Shame on you! Shame on you!”

At the time, I wrote on these pages that that was a seminal moment in the politics of austerity: the point at which the government could no longer pretend that the cuts were happening only to shirkers. And Dorrell was exactly the kind of natural Tory voter the party could ill afford to lose.

Dorrell told me this weekend that she’d never planned to go off like that, but when Rudd spoke she felt “a force from inside my belly”. She’d lost her job in 2011, had to go through the horror of the benefits system and then retrained and set up a nail bar. She’d played it by the book, done everything the Tories told her to do – and still she was, to use an old phrase, just about managing. Instead of birthday and Christmas presents, her dad would buy £100 of food from Sainsbury’s or Lidl and restock the fridge.

At first business went well, but the economy in her hometown of Folkestone is as moribund as anywhere else in non-metropolitan Britain. She’s just closed her nail business and works in a local shop on a zero-hours contract, getting eight to 12 hours of shifts a week. She needs more, but the manager says the company will never give her 16 hours because they don’t want to pay employers’ national insurance. She still needs benefits to top up wages, yet the benefits system keeps getting meaner. In April 2011, 6.4 million families were on tax credits, according to Carl Emmerson of the Institute for Fiscal Studies. By this April that was down to 3.8 million: of those losing out, a tiny number may have moved to universal credit – but many millions more simply got poorer.

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Dorrell, who is in her late 30s, describes herself as “a child of Thatcherite economics”. Her parents are Tory, her hometown is Tory. And in the 1980s, someone like her might have gone along with the Conservatives’ promises. In the last couple of years she’s become radicalised, joining Labour and Momentum.

She talks about local GP surgeries closing and overcrowding in classrooms. Talking to me, she looks out of her bedroom window on to a car park where drug dealers hang about. Her children are still playing by the rules – and getting punished for it. Her eldest daughter is at university, set to graduate with £65,000 of debt. For her children, austerity is all they’ve known – at home, in the classroom, at the start of their working lives. What the winter of discontent was to the Labour party for a decade – the indelible stain, the warning at the ballot box – the decade of cuts may prove to be for May’s party. “The Tories are screwed for a generation, aren’t they?” says Dorrell. “My kids will grow up knowing they’ve been screwed over by that lot.”

• Aditya Chakrabortty is a Guardian columnist and senior economics commentator