This time last year, David Cameron told us the coalition had taken Britain "out of the danger zone". Yesterday he was reduced to rewriting his conference speech as the evidence piled up that Britain is staring over the precipice.

The latest figures are stark. The British economy has come to a standstill, with zero growth over the last nine months. Even more humiliating for a prime minister who had planned to advise people to pay off their credit cards, household spending has fallen for the fourth quarter in a row.

To encourage people to spend less when demand is already falling was pure folly – and Cameron duly executed another U-turn. But there was no sign of any retreat from the disastrous course that he and George Osborne have set on cuts and austerity.

Instead Cameron again blamed Labour spending for the crisis. But in the nine months before the economy ground to a halt, it grew by nearly 2% on the back of that stimulus. Now that spurt has been choked off, there is no chance of the government hitting its own targets, and borrowing will be higher as a result.

Osborne had strangled recovery before the latest eurozone maelstrom. But that crisis now threatens not only another recession across the continent – but another global financial crash. The banking crisis of 2008 was transformed into a sovereign-debt crisis by state bailouts and the costs of the slump it triggered.

Now that debt crisis – deepened by austerity – is wreaking vengeance on the banks, loaded down with unrepayable loans. Just as Cameron prepared to promise to "lead us out of this mess", the Franco-Belgian bank Dexia teetered on the brink of collapse.

"Our plan will work", was all the prime minister offered by way of reassurance yesterday. But that judgment already looks flaky. And most people in Britain aren't reassured. Nor are Cameron and Osborne's old friends at the IMF, which yesterday called on countries able to borrow at low interest rates, such as Britain and Germany, to "consider delaying" their cuts programmes.

The IMF has argued Britain could afford to raise its debt by 50% of GDP without triggering a crisis. But the Tory leaders show no signs of budging. Osborne's "credit-easing" plan to boost bank lending to businesses simply reflects the failure of his Project Merlin to achieve the same thing.

Not even its most enthusiastic advocates imagine such an intervention will turn round the collapse in investment or demand. But still the government shrinks from using its control of two of the biggest banks to boost investment and lending directly.

Osborne instead came up with a new growth plan: make it easier to sack workers, while requiring them to pay £1,000 for an unfair dismissal hearing in an employment tribunal – refundable only if they win the case. There's no serious evidence that extending the qualifying period to claim unfair dismissal from one to two years will create jobs. But it has the advantage of appealing to the employers' lobby while giving spurious credence to the idea that Britain's woefully weak labour protection is in some way holding back recovery.

Signed off by Vince Cable, it also reveals the limits of Liberal Democrat restraints on Thatcherite recidivism. But more than that, it casts some light on the class interests at the heart of this government's response to the crisis.

Cameron and Osborne's refusal to change course is partly driven by ideology, of course, and a determination not to weaken in any way the private grip on the major levers of economic life. But there's something else, more quintessentially Tory, about it.

"If this party is anything, it's the party of small business and enterprise", Osborne told the Conservative faithful in Manchester this week. But that's not the whole picture. As the figures published at the weekend by the Guardian underline, the Tories are first and foremost the party of the City of London and financial engineering. More than half the party's £12m donations in the last year came from the City and banking. Its most lavish donors were hedge funds, financiers and private equity firms: the very interests which drove the financial sector over a cliff in 2007-8.

Now, the Tories' intimate links to banking are hardly new – even if the funding grip has tightened. But a government in the hands of what is effectively the political wing of the City of London takes on a more dangerous significance when bankers and financiers are almost universally recognised to have both played the central role in creating this crisis – and in perpetuating it.

It's not just slashing the rate of corporation tax for banks, or delaying the milk-and-water Vickers bank ringfencing proposals till 2019, or refusing to clamp down on bank bonuses in the teeth of public hostility or vetoing a financial transactions Tobin tax. It's the refusal to intervene directly in banking and finance to drive recovery that most starkly reveals whose interests the government puts first.

Not that the City grip on the Tory party is much discussed in a corporate-dominated British media. Instead the focus is on Labour's tightly regulated funding by trade unions, the country's largest democratic organisations that wield no such power and influence, even on the Labour party.

None of this, of course, has stopped Cameron talking earnestly about being "completely dissatisfied with the banking industry's behaviour", or the need to "encourage good business practices", or his determination to "crack down on tax evasion". In fact, despite the Tory leaders' withering dismissal of Ed Miliband's call last week for a new "economic system", it's striking how much they have echoed some of his language.

No doubt they've registered the polling that shows most people agree Britain is dominated by "fast-buck capitalists" and "predators, not producers". The problem for the Tories is that those are also their most enthusiastic supporters and paymasters.

If Miliband really intends to break with the 30-year-old "Thatcher settlement", one Conservative cabinet minister told me this week, it would be a highly significant political shift. "But I don't think that's where the British people are," he added, "they just want us to sort out the mess of the last five years". As the crisis deepens, however, it's becoming ever clearer you can't do one without the other.