What constitutes a good society? What are our responsibilities and obligations to one another? To what extent is our humanity about looking solely after ourselves or being part of something we call society? The autumn statement, opening a new chapter in its rewriting of Britain's tattered social settlement, has suddenly made these the fundamental questions in British politics. The last vestiges of an approach to organising society based on a social contract have been shredded. In its place there is an emergent system of discretionary poor relief imposed from on high in which every claimant is defined not as a citizen exercising an entitlement because they have hit one of life's many hazards, but as a dependent shirker or scrounger.

David Cameron and George Osborne, repudiating the canons of the Enlightenment, the New Testament and the British commitment to fair play, think they are on a political slam dunk. Osborne gloried in his depiction of his actions in support of the nation's "strivers" and attack on the shirkers. With a populist centre-right press behind him, he thinks he has launched a political masterstroke. Does the Labour party dare to vote against next year's proposed welfare bill removing the link between inflation and the increase in benefits?

Everyone knows the coalition argument by heart. Fairness demands that the recipients of Britain's allegedly enormous welfare bill play their part in the crash programme to eliminate Britain's budget deficit.

Austerity must hit everyone. The welfare system, so the argument goes, has become a colossal scam encouraging systematic cheating and, worse, a culture in which idleness is rewarded and work penalised. What is more, support for social solidarity as a principle is disappearing. Polls reveal large majorities who support the coalition's propositions.

But can so much of our culture, and what it means to be part of western civilisation, be put aside so easily? The idea that the best society is one organised around a voluntarily agreed contract between its members who come together and acknowledge reciprocal obligations is not so lightly torched. It may be unfashionable to defend the conception of a social contract, but our religion and our culture enshrine the notion of mutual responsibility and obligation.

Life is risky and hazardous for everyone. The bad luck of a broken family, unemployment, poor health, unexpected expenses of old age, mental illness and physical incapacity can hit anyone, however hard working. These risks confront everyone.

A good society recognises these risks and insists they should be shared and insured against in an agreed system of collective insurance. The great thinkers of the Enlightenment proposed that if society was to get beyond theocracy, anarchy or despotism, then it had to be underwritten by such a social contract. To organise society as an individualistic war of one against another was barbaric, while the other models, slavishly following the rules of one religion or one supreme leader, denied freedom.

Cameron and Osborne will publicly say that they still respect such values, but, privately, they are pursuing a different agenda. The terms on which millions have made their plans and life choices have been torn up. The automatic link between inflation and the uprating of benefits is to be scrapped for at least three years. The tax relief available to those building retirement pensions is to be further withdrawn. This comes on top of the capping of benefits, whatever the need, the restrictions on housing benefit, further limiting of incapacity benefit and the shrinking of access to child benefit. Additionally, there is a new bridgehead further to remove employment protection in the labour market, trading employment rights for shares in the company.

Is any of this fair? The heart of fairness is to establish a proportional relationship between contribution and outcome to which everyone consents. People have made calculations about how they are to handle the costs of old age, bringing up their children, physical incapacity or the lack of work in their area on the basis of social contributions to their circumstance that they reckoned on being an inviolable part of the deal. Now they find it is all turned on its head by fiat and for which no one voted. A social contract is a bargain over time. I pay my taxes and national insurance contributions. I should get benefits back when I need them.

What is happening is both illegitimate and contemptible and as the proposals are rolled out, more and more people will start to think so as they are affected too. The anti-welfare opinion poll majorities will begin to dissolve.

Is this necessary? Osborne insists it would be a "disaster" to turn back from his target of balancing the budget within five years and social spending must share the burden. He is an economic illiterate. Economics 101's first principle is that if households, companies and banks are simultaneously saving and building up surpluses, as they are at present, then someone in the system has to have a deficit to compensate, otherwise there is a downward depressive economic vortex. That someone necessarily is the government. Its deficit is the counterpart of surpluses elsewhere. Osborne could and should have used his autumn statement to give the private sector the confidence to invest, to borrow, to innovate and to spend and so run down its vast £700bn cash stockpile. He should have adopted a bold target for the growth of nominal income, launched a multibillion pound infrastructure programme and cheap loan guarantee scheme. Then the pressure on the government's own books would have been relieved.

He did none of these, instead believing that financial repression and shameful withdrawal of benefits are the triggers of recovery. Is every last aspect of Britain's social contract defensible? Plainly not. As far as possible, a social contract should be designed to recognise labour market realities and not undermine incentives, restrict itself to insuring against inevitable risks and hazards and be supported by sufficient taxation and a government doing its level best to promote economic growth and jobs. Reform should take place within such a framework, but that is not what is proposed. Labour is steeling itself to do the right thing; if it can spell out what a 21st-century social contract looks like, this is an argument that can be won.

The Lib Dems also have to brace themselves. Osborne, his politics, economics and values, should be opposed to the last. Are they prepared to do what must be done?