To listen to government ministers and boardroom barons, you'd think that the economic crisis that erupted in 2008 was as good as over. Recovery might be weak and choppy, they'd have us believe, but it's nevertheless under way. Cuts might be painful, they insist, but they're essential for a rebalanced economy – and anyway they're all the fault of the previous government.

As elsewhere, there is a determined attempt in Britain to restore the economic model so comprehensively discredited in the crash of 2008. But the evidence is piling up that the full impact of the crisis is only starting to make itself felt – and that both the economy and politics will be transformed before it has run its course.

In Britain the loyalty to a failed past is most striking in the Tory-led government's resolute refusal to bring to heel the banks that delivered the economic meltdown. Bankers' greed might be the object of public revulsion and ritual political handwringing; and the banks' survival might depend on the greatest public handouts and guarantees in history. But once again, their executives have awarded themselves hundreds of millions of pounds in pay and bonuses, while real wages are being forced down across the workforce. Even Stephen Hester, the chief executive of state-owned RBS, is pocketing £7.7m while failing to carry out the bank's essential function of boosting lending to credit-squeezed businesses.

And instead of directing the banks they own or underwrite to ditch bonuses and drive recovery, George Osborne and his Liberal Democrat lieutenants have in effect cut Labour's bank levy, slashed corporation tax and signed a toothless agreement that will clearly achieve neither.

Given that over half the Conservative party's funding now comes from bankers, hedge fund managers and private equity moguls, perhaps that's not so surprising. But, combined with a scale of brutal and counter-productive spending cuts only matched in Europe's basket cases, the result for the British economy has already been disastrous.

Put to one side the arbitrary convention that two successive quarters of economic shrinkage are needed to qualify for a recession. Britain has in fact already had a double dip, as the economy shrank by 0.6% in the last quarter of 2010 – and that's before the effects of most cuts and tax increases have been felt.

Greece and Portugal are the only other European Union countries whose economies declined in the same period. But it has taken the Bank of England governor Mervyn King of all people to nail the endlessly repeated falsehood that the deficit is the result of Labour profligacy – rather than the breakdown of an unregulated and unreformed financial system enthusiastically endorsed by the entire political class.

King blamed the bankers for the cuts, and warned of the threat of further crises unless the financial behemoths were brought to book. And it was Richard Lambert, the outgoing head of the employers' CBI, who took the government to task for absurdly relying on the ruthlessness of its cuts to deliver growth.

David Cameron's response has been to promise more deregulation and blame civil servants for "loading costs on to business". That will be the theme of this month's budget. It's got all the makings of a 1980s revival, complete with the Thatcherite favourites of increased VAT, deep cuts in the poorest areas and mass privatisation.

Ministers seem determined to reinstate a neoliberal order that is beyond repair, while the conditions that eventually allowed economic recovery in the 80s after the destruction of 20% of the country's industrial base and the creation of 3 million unemployed under Margaret Thatcher – including a far more benign international economic environment – are simply not there.

The latest slow-motion aftershock of the 2008 crash is being felt in the oil market. The Arab uprisings of recent months have targeted dictatorship and had multiple causes. But the trigger for the Tunisian revolution, which sparked the wider revolt, was economic: rising food prices and unemployment in the IMF poster-boy state, combined with declining workers' remittances from recession-hit Europe.

Now that the upheaval has spread to oil-rich Libya and is echoing across the Gulf kingdoms, oil prices have started to spike. If the Libyan stalemate continues, or the revolution reaches the main oil producing states, the impact of sharply higher prices on global recovery is likely to be dramatic – a boomerang effect of the original crisis, which would further squeeze growth and fuel inflation.

Already European and British central bankers are preparing to make a renewed downturn more likely by threatening higher interest rates in response to rising energy and food prices. Add to that the continuing turmoil in the eurozone, and the damage of a new oil shock on a stagnant economy like Britain's – already bled white by market dogma – could be far-reaching.

The aftermath of the crash of 2008 demands a different kind of political economy. If Britain's coalition government carries on imagining it can cut and deregulate its way out of emerging stagflation, it will fail and its unpopularity deepen. But Labour also has to break with policies that helped generate the crisis in the first place.

David Miliband, the party's failed leadership contender, this week defended New Labour's record, arguing that European social democrats need to move away from reliance on high public spending and state power if they are to regain support in an era of economic crisis.

But it isn't public intervention that is behind the failure to invest or lend – it's the lack of it. And it wasn't New Labour's over-regulation of the City that made Britain especially vulnerable to the credit crash. It was the opposite. Right now, publicly owned banks and their cash mountains should be at the heart of an investment programme to propel recovery. But that would mean moving on from an economic model broken by its own excesses. Instead, they're being fattened for privatisation.

Mervyn King expressed surprise last week that the "degree of public anger has not been greater than it has" over the costs of the system's failure. But as those costs are rammed home, both in Britain and across the world, it will become clearer that the fallout has only just begun.