It would be funny if it were not so terrible. Britain is 30 years into the grand Conservative project that was to transform the nation into a "property-owning democracy". To mark this great anniversary, a government-sponsored organisation, UK Asset Resolution, is about to embark on the highly patronising and paternalistic task of telephoning 30,000 mortgage-holders and telling them to spend less on nights out, Sky television, gym membership and mobile phones, and more on servicing their mortgages. It's safe to say that this is not what Margaret Thatcher had in mind when she promised that her privatisation policies would remove the state from people's personal lives. It hardly chimes with David Cameron's rhetoric either.

UK Asset Resolution. What a name. It sounds like a highly dodgy private company that buys debt, then intimidates people into paying it off at extortionate rates. But it isn't. UK Asset Resolution is the Treasury-owned holding company that was established last October to "support around 800,000 customers with £77bn of loans", customers who initially took out their mortgages with Northern Rock and Bradford & Bingley. Both of those companies, of course, are now "taxpayer owned", after receiving more than £48.7bn in government loans.

Essentially, all these 800,000 people live in houses that are owned by the government, and have to pay the government every month if they wish to carry on living in them. Some of them – the riskier propositions – will also have to put up with presumptive lectures from strangers about their frivolous failure to understand their financial priorities. And they are not the only vulnerable "home owners" by any means. It is Lloyds TSB and Royal Bank of Scotland, for example, not Northern Rock and B&B, that have the greatest exposure to customers whose mortgages are already larger than the value of their homes.

You'd imagine that the implosion of the "property-owning democracy" project was obvious to all. You'd have imagined that it had become obvious back in 1997, when highly visible homelessness was one of the factors that delivered a landslide election victory to Tony Blair. But no.

Just to underline this historic failure, the National Housing Federation this week predicted that the proportion of the population who own or live with the owner of their home will fall to 63.8% by 2021, about the level it stood at in the 1980s. Of more immediate concern are the observations from homelessness charity Crisis that rough sleeping is up 8% on last year, while the number of people accepted as homeless by local councils and placed in social housing is up by 10%. Since the coalition came to power, the number of families claiming housing benefit has risen by 150,000. There are now five million names on waiting lists for social housing. Many more don't bother to make an application, because they understand that they have absolutely no chance of becoming a council or housing association tenant.

The most astounding thing about this mess is that there is still a widespread failure to understand that a flagship ideological experiment in self-regulation by the market is in tatters. The deregulation of banks and building societies, combined with draconian restrictions on the provision of new council housing, which could have replaced stock diminished by the right to buy, was supposed to transform "sink estates" into privately owned and lovingly cared-for communities. Instead, the social demographic of people living in council flats has narrowed massively. The people with the greatest problems are herded together, sometimes seeking a dark kind of identity in their blighted postcode, to the point at which the threat of eviction from council housing is seriously touted as a way of encouraging people to think twice before they take part in riots. God help us.

Yet even though the property-owning democracy idea has achieved neither its social nor its financial goals (the housing market has manifestly not developed in an orderly fashion that seamlessly matches supply and demand), there remains a truculent insistence from the right that somehow it is still interference from the state that is the problem, rather than the lack of it. That is at the heart of Cameron's wish to delay the enactment of recommendations whereby banks separate their retail operations from their investment arms. Not for the first time in recent decades, we see a British prime minister who is very keen on "liberal democracy" when he is "exporting" it, but much more keen on oligarchy when he is dealing with matters at home.

Capitalism is pretty simple. Those with the capital get the profits because they are the ones who have money to invest. The very fact that 30 years of financial deregulation has resulted in greater division between rich and poor is prima facie evidence that capitalism has been working extremely dynamically, unhindered by the state's supposedly crushing interference, until the bursting of the asset bubbles that it created. Chief among these, of course, was the property bubble, which in turn fuelled the febrile consumer boom that continues to worry the 2,400 employees of UK Asset Resolution so greatly.

Yet, still there remains in place an obstinate refusal to see that, without a determinedly redistributive infrastructure, liberal democracy simply cannot exist.

Britain has now been an oligarchy, not a democracy, for quite some time. It is utterly absurd that Cameron and his chancellor George Osborne are at odds with their coalition partners over this question of reorganising the banks, and instead are minded to give greater weight to the desires of the banks themselves, who are resisting the plan.

Basically, the reform calls for the ordinary money of ordinary people, who earn it, to be looked after with more caution and respect than the extraordinary money of people looking for speculative returns that will provide unearned income. After the hammering that ordinary people have been asked to take, in consequence of the financial crash, it is perverse and repulsive that this pair can even imagine that they have a mandate to shield the banks from a restructuring prompted by their own cavalier and foolhardy negligence. It's an appalling affront to democracy, property-owning or not.