The government's great planning reform has veered way off course, and needs steering back to sanity. It responds to no national calamity, and there is no public gain to the reform itself. An updating of the system in the local government department was hijacked by a group of "practitioners", mostly builders and developers, and slid into print.

I cannot blame the developers. They cannot believe their luck. They seized a golden opportunity to tip chunks of countryside into their already bloated land banks. It was naive ministers who missed the boat. Rather than retrieve the document for revision, they resorted to calling protesters – including the Daily Telegraph, the National Trust (in which I declare an interest as chairman) and swaths of Tory supporters – "hysterical nihilist lefties" and enemies of capitalism.

The problem now is that the chancellor, George Osborne, and his planning secretary, Eric Pickles, have pinned their colours to this dreadful document in the Financial Times, of all places, as a "battle for young people's future prosperity and quality of life". Their thesis is that land-use planning strangles the economy and stops house-building. Osborne claims that "planning delays cost the economy £3bn a year", and are "a deterrent to international investment". This ridiculous figure is impossible to source but appears to come from the British Property Federation. The same applies to the thesis that planning in London is twice the cost in Paris and 10 times that in Brussels. If this were true, it is odd that London has become the financial centre of Europe.

There is simply no evidence, beyond the howls of lobbyists, that land-use planning impedes growth. Most planning applications are handled within the three-month target, and fewer than 1% take more than a year; 80% of applications are approved, and 90% of big commercial ones: evidence is the vast distribution sheds that now coat the East Midlands countryside and the hypermarkets that encircle almost every English city and town, "doughnutting" their centres with blight.

The only partial resistance is against the occasional rural "executive" estates, usually rejected because of the current and sensible bias towards building in and round towns. Yet it is the desire for these estates that runs as a near obsession through almost every paragraph of the document, because that is the land the housebuilders want.

There are thousands of acres in the nation's development land bank. The slump has left manufacturing and commercial sites idle nationwide. A recent Grimley industrial survey put commercial space availability as "the highest for 14 years", with 1.6m square feet free for letting. The business park vacancy is 17%. Whatever is causing recession, it is not land shortage.

As for housing, it might seem odd in a recession for a chancellor to be directing savings (and bank loans) from productive investment into the housing market. Osborne and Pickles clearly regard housing as an economic driver. Yet even were this true, land is not the critical issue. It is not in short supply and cannot therefore be a curb on growth. Permissions exist for 330,000 unbuilt houses, with 280,000 of them in the banks of the 11 largest developers who now constitute the lobby. This is in addition to 750,000 houses lying long-term empty, thanks to the chronic inadequacy of property taxation. Brownfield sites are estimated to have room for a further 3m houses.

The much-cited fall in house completions to 140,000 last year had nothing to do with planning and everything to do with the economy. Housing supply correlates with the economic cycle and the availability of subsidy and mortgage finance. The argument is merely fogged by housing "need" being confused with demand, as it is throughout the document. Everyone wants a bigger house, preferably in attractive country. The quickest solution is to tax England's under-occupied housing space and relieve VAT on house conversion. It is crazy to build in the country when the local town has vacant space in every street.

Half of local authorities have no formal plans, since they have relied on the cosh of Labour's strategy targets, which Pickles is continuing to enforce. The document says that, in these cases, planning permission should be given "by default", as well as where plans are "out of date" or "indeterminate", all undefined. The sole requirement that permits pass the test of sustainability turns out to include "economically sustainable", which can mean in receipt of government housing subsidy. This is absurd. The old bias towards building in existing settlements is specifically revoked, effectively revoking a bias for sustainability. These weasel words make the document a lawyer's banquet.

Despite its claim, Pickles's new regime is "local" only in cosmetics. Planning authorities must operate in conformity with national policy, or government inspectors will overrule them on appeal. Localism is to be reflected in parish, neighbourhood and "business" forums, which can put their own plans up to authorities but be rejected if not sufficiently pro-development. If they are more pro-development, then they can give themselves permits under "neighbourhood development orders".

This makes these forums a bizarre constitutional innovation. They may consist of nothing more than a meeting of more than 20 people, unelected and not necessarily living locally but only working there. The whole regime is a recipe not for planning the right balance between town and country, but for local civil war.

The economy is not short of building land. It is short of cash. Short-term political desperation has produced a confusion of the two. The government should adjust and clarify its policy and direct development back towards towns. Otherwise the countryside will not disappear: it will just slowly lose the sense of rurality that remains a blessed feature of the 65% of England that lies outside towns and protected parks and green belts. Rural England will start to look like the south of Ireland, Spain or New Jersey, its inhabitants ever more reliant on cars, and cities ever more impoverished. The landscape will sprout the clutter of ads, signs, masts, turbines and sheds that are a feature of so much of Europe.

This change will have resulted not from a great cry of the people to be free, or from overriding economic need. It is happening because a powerful lobby got a lucky break when government was vulnerable and ministers were not looking.