The British growth model is well and truly broken. If any more evidence for this was needed, it came from figures last month showing that households had become net borrowers for the first time since records began in 1987. They took out almost £80bn in loans last year, the highest amount in 10 years. Only £37bn was deposited in banks. This has echoes of the pre-2008 boom period, and we all know how that ended.

The Office for National Statistics also reported that reliance on short-term unsecured loans, such as credit cards and payday loans, had exceeded £200bn: a record high. Nine out of 10 new car purchases are made using hire purchase or some kind of similar arrangement. Rather than serve as a corrective, the financial crisis and its aftermath has just reaffirmed that we remain addicted to this debt-fuelled route to growth.

The British sociologist Colin Crouch has dubbed this “privatised Keynesianism”. Whereas traditional Keynesian economics relied on government spending to boost aggregate demand, privatised Keynesianism relies on household expenditure instead.

But because we are living in an era of historically low levels of wage growth (it dropped again last week), the only way to finance this expenditure is through rising debt. This sort of growth model conjures up images of frenetic shoppers, multiple bags in hand, rushing from Primark to Topshop and back again, putting everything they buy on the credit card.

Framed in this way, Britain’s middle classes can distance themselves from what they perceive as crass consumerism. But in reality, we are all a part of it. The middle classes have led the way with their reliance on mortgages, while those on lower incomes resort to credit cards and payday loans.

When house prices rise far in excess of earnings, home ownership has powerful wealth effects for those on the property ladder. Borrowing on the back of these rising house prices fuels further rounds of consumption. The government has cracked down in recent years on the buy-to-let market, but years of easy credit in the 2000s, coupled with the financial deregulation of the 1980s and 1990s, made this kind of investment a pillar of the UK economy. If you want a summary of Britain’s political economy of the past 30 years, look no further than the BBC’s Homes Under the Hammer programme.

Those who bought their houses when average earnings still had some connection to house prices have done handsomely out of this, but it has been a raw deal for everyone else. Of the £2.7tn increase in wealth since 2007, two-thirds has accrued to the over-65s in the form of housing- and pension-related gains. In stark contrast, 16- to 34-year-olds have seen their wealth decline by 10% over the same period.

Privatised Keynesianism has always been an unsustainable way of organising our economy. It is, as the German economist Wolfgang Streeck put it, just a way of “buying time”. Now this kind of growth regime has entered its morbid phase. The inequalities it generates have become so brazen that few can pretend not to notice them. In the decade since the crisis, restrictions on lending have locked in the gains of privatised Keynesianism for baby boomers and those lucky millennials able to draw on the Bank of Mum and Dad. The rest of the younger generation have been shut out. High levels of personal debt are pushing up levels of stress, anxiety and resentment.

This broken model has reshaped Britain. We are a nation of consumers, not producers, which is reflected in our systematic deficit in the balance of payments. The UK has not had a trade surplus since 1998. Large chunks of our service sector economy are oriented towards administering to the needs of those enjoying the benefits of an overvalued housing market. Consumption-driven growth sustains high demand for services that rely on relatively low-skilled labour, including the fast-expanding “gig economy”. This has changed the shape of our labour market, hollowing out middle-level skills and widening the gap between the high- and low-skilled. We have created a new precariat to serve the needs of the asset-rich.

‘Consumption-driven growth sustains demand for services that rely on unskilled labour.’ Photograph: Andy Rain/EPA

Our debt-fuelled growth model has also changed the political and social geography of the UK. We no longer have a national economy as such. High-quality manufacturing jobs – once concentrated in the north and the Midlands – have given way to low-skilled service sector work, in distribution warehouses, supermarkets and call centres. The high-skilled service sector jobs tend to be concentrated in London and the south-east. The government’s industrial strategy celebrates hubs of innovation such as Silicon Fen in Cambridge. It has nothing to say about what the Labour MP Rachel Reeves calls the everyday economy.

If the model’s broken, what’s the alternative? The UK needs to rebalance its growth, relying less on consumption and more on production. The financial sector is not as big as many think, but it weighs on the British economy in a modern version of Dutch disease: the regular inflows of foreign capital simply enable our dependence on asset bubbles rather than rising wages as a route to prosperity. They strengthen the pound, making it ever harder to achieve the increasing levels of exports needed to sustain a different growth model.

We also need to raise dramatically the skill levels and the status of many jobs in the service sector. It is a national scandal that those who look after our loved ones – our children and our older relatives – are paid so little, and given so little attention in our national economic strategies.

But transforming Britain’s economy requires something even more fundamental: we need an entirely new social settlement. One of the biggest ideological achievements of Thatcherism was the destruction of the idea of society embodying the common interest. And without a sense of the social, we cannot hope to make any real changes in our economic model. Weaning Britain’s middle classes off their reliance on property will generate enormous amounts of resistance from all those – from landlords to solicitors – who have a vested interest in preserving the status quo. That can only be overcome by appealing to the common good.

The US historian Christopher Lasch once wrote that a properly democratic society should not aim to create a framework for competition where the most able succeed and the others fail. Instead, it should aim to raise the general competence of society as a whole. This should be our aim once again. To achieve it, we must regain a sense of what society means.

• Chris Bickerton teaches politics at Cambridge University. This article is based on a longer essay available here