The summer of 2007 was a washout - literally so for people in Gloucestershire, Herefordshire, Yorkshire and beyond, who suffered severe flooding. Autumn weather alternated between further rainfall and plunging temperatures. The glorious summer days and fiery autumn colours of 2005 and 2006 seemed a fond memory.

Poor weather was matched by growing unease in the British middle class as 2007 turned into 2008. On every front, its living standards, status and career prospects were threatened, along with such objects of affection as the value of its homes and its children's education.

Life was still sweet for the New Olympians, the pampered rich who run the country's biggest companies and financial institutions. But Middle Britain, that union of the traditional professional middle class and the much wider group of "aspirant" households, was facing the stark possibility that 15 or more years of prosperity were drawing to a close. Worse, its members could have been forgiven a sneaking feeling that they were now the target of the sort of asset stripping that had been visited on the nation's factory workers, on those employed in "primary" industries such as farming, fishing and mining, and on small shopkeepers, thousands of whom had been driven out of business by supermarkets.

Indeed, on the subject of supermarkets, lawyers learned this time last year that they had a new competitor. "Tesco," the Sunday Telegraph reported, "is plotting to take on high-street solicitors by launching a property conveyancing service ... The move is likely to see a call centre-type operation offering shoppers a low-cost, computerised service."

Lest anyone comfort themselves with the thought that property conveyancing is a pretty standardised service, and that a supermarket's incursion into the market is nothing about which to get excited, beware. The Labour government's "liberalisation" of the legal system, due to take full effect by 2011, aims to allow all legal advice, not merely conveyancing, to be dispensed from booths in supermarkets. Not for nothing have the "reforms" been dubbed "Tesco law".

As with the City of London's "Big Bang" changes in 1986, "Tesco law" allows firms of solicitors to seek outside investment and even have their shares listed on a stock market. This parallel was made explicit in an authoritative news report on November 9, headed "Law firms gear up for their own Big Bang". "Observers inside and outside the profession," reported the Financial Times, "say the very act of selling out would destroy the value of the business, as young lawyers who had been aiming to become partners would immediately leave and go into a better-paid industry such as banking. Young lawyers would stay only if the new owners raised pay sharply so that salaries and bonuses were competitive with those at leading investment banks."

This, of course, is precisely what happened to the stockbroking and stock-jobbing professions after Big Bang. Partners sold out for huge sums and firms were absorbed into anonymous, all-purpose "investment banks". With the checks and balances of the partnership system replaced by bonus-driven salary packages, the way was clear for "rogue traders", most famously Nick Leeson, whose reckless gambles brought the bank Barings to its knees.

Nor was the law the only middle-class profession to face the asset strippers in 2007. In early November, the Heart of Birmingham primary care trust announced plans to let private firms run general practitioners' surgeries. According to the trust, Asda and Tesco had expressed an interest, as had Sir Richard Branson's Virgin group. As the Sun reported, "the trust said the non-health organisations ... were confident they can replicate the best aspects of the GP partnership's relationship with its patients. They do this with their customers on a daily basis." The British Medical Association attacked the proposal, with one member of the GP Committee claiming that "continuity of care" for patients would be disrupted if the private firms took over surgeries, while some smaller practices would be forced out of business.

By the early weeks of this year, the government was in a confrontation with family doctors over extended opening hours for surgeries. From the doctors' ranks came murmurings that this was merely a dummy run for a much bigger battle, started by ministers, to force doctors into anonymous "polyclinics" run by private companies. On January 29 the London Evening Standard reported: "A private American health firm has won control of three GP surgeries in London. The deal with United Health Europe opens the way to the privatisation of family doctors' practices. It comes after a government push to put primary care into corporate hands. Doctors have warned that patients could suffer as conglomerates offer 'cut-price deals to win contracts'."

If that sounded an extraordinary sell-out by a supposedly Labour government, it was of a piece with the news on January 28 that commercial companies were for the first time to be allowed to award nationally recognised qualifications based on their own workplace training schemes. In a parody-defying move, the government announced that the first three accredited schemes would be run by the burger chain McDonald's, the airline Flybe and the train track operator Network Rail. The Guardian that day reported: "Staff at McDonald's will gain the equivalent of A-levels in running burger restaurants after the fast-food giant won government approval to become an exam board."

Elsewhere, plans to slash the Post Office network were being finalised. Of the 14,000-strong branch network, 2,500 were to close, leaving customers and communities stranded. The Telegraph described it as "an act of community vandalism" that would "rip the hearts out of many of our small towns and villages".

For generations, the job of sub-postmaster and sub-postmistress has been part of the very backbone of middle-class respectability. Yet despite the terrible sadness of the destruction now being wreaked on the Royal Mail, the way it came about is instructive. The Conservative government of the early 1990s announced plans to privatise the Post Office, but backed down in the face of enormous public protest. Undaunted, ministers and bureaucrats merely put the country's name to a European Union scheme to liberalise all EU postal services, which would have much the same effect without too much in the way of pesky public debate.

When the branch closure programme - coupled with the abolition of second deliveries - evoked protest, the Royal Mail and the government were able to claim they had no choice, as the service had to be made leaner and fitter in order to compete with both private delivery organisations and foreign post offices.

Lawyers, GPs, sub-postmasters ... like bewildered characters in a superior television thriller, all seem destined by some shadowy authority for punishment for crimes the nature of which has never really been spelled out. Nor are they alone. The bank manager, in times gone by a pillar of the community, has virtually disappeared in his old form. Lending decisions have been almost entirely centralised, using complex computer risk-assessment systems. Managers and staff are expected to concentrate on selling financial products - insurance, savings, investments and the like.

If the unrestrained free market threatens the status and earnings of the middle class on one flank, the activities of government mandarins pose quite a different threat on another.

Next in the affections of the denizens of Middle Britain to the value of their homes (and often linked intimately with that value) is their children's education. Since the late 1980s, the official emphasis has been on parental choice within the state system. By last year, however, it was becoming clear that, in the wonderful world of public education, "choice" was not meant to involve actually choosing anything. Indeed, making effective school choices was thought to be vaguely reprehensible. In November the admissions regulator, Dr Philip Hunter, declared that schools should select pupils by lottery to prevent middle-class parents monopolising the best comprehensives. The policy should be used even if "deeply unpopular with groups of articulate parents".

The Department for Children, Schools and Families broadly agreed with Hunter. That in doing so it was tacitly admitting that parents, rich and poor, would try to avoid like the plague a large number of the schools for which it was directly responsible would not be lost on Hunter's "articulate parents" - or even, perhaps, on the inarticulate ones.

At this point, the neutral observer may find his sympathies starting to drift. Does not the school lottery affair highlight a problem with going to the defence of Middle Britain at this time? Is it not merely a defence of semi-closed shop arrangements that may be agreeable to those on the inside but less so to those who are not? After all, if Tesco can provide cheap legal advice from a corner booth and medical services in a similar (albeit, one would hope, rather more private) location, what is so wrong with that?

We would argue on four grounds that there is likely to be a great deal wrong with it. First, from the customers' point of view there is little - indeed, no - reason to believe that the public, as a whole, will enjoy better or cheaper professional services from corporate providers than they do from local partnerships. Some of these providers will doubtless seek to cherry-pick the best customers, as (quite legitimately) did the pioneering telephone insurance service Direct Line and its banking equivalent First Direct. Those customers will receive favourable offers. The others will not, being offered instead standardised "quickie" services. In law and medicine, in particular, where personal advice and consultation are so vital to the provision of the service, this could prove a very bad deal indeed.

Second, the transformation of independent professionals, who are effectively self-employed, into salaried corporate employees will be bad for everybody. It will rob ordinary people of sources of confidential service and bloat further the power of large corporations. Professionals provide an important counterweight to other forms of power, and can assert their independence in ways that corporate employees cannot. Pro bono work is different in kind from PR-driven "corporate social responsibility".

Third, an independent professional class has value beyond its utility as a source of advice and as a bulwark against the power of companies and the state. It provides a continuum within which aspirations can be satisfied while delivering a public service. If social tranquility matters more than shareholder value, the independent professional class should be shielded from corporate and other depredations, not exposed to them.

Fourth, as we have said before, if these dumbed-down, commoditised, supposedly cheap, corporately owned services are so good, why do we rarely hear of members of the wealthy elite using them? Why do the New Olympians prefer to stick with the traditional one-to-one relationship with doctors or solicitors?

The reply could be that they can afford it; but so, at present, can most people, thanks to the ways in which the National Health Service and the legal profession are structured. The local GP's surgery may be down at heel compared to the Harley Street consulting room, but the two are fundamentally the same thing.

School lotteries may appear to raise a separate issue, involving as they do the middle class solely as a user of one particular type of public service. But the neat symmetry of the whole affair is a near-perfect illustration of the way in which Middle Britain has been "had". For 10 years, the government supported the whole notion of parental choice while suggesting it would become increasingly irrelevant as all schools were steadily improved. With the lottery, the illusion is ended - the government opposes the whole notion of parental choice precisely because it exposes the fact that there has been no such improvement.

Middle Britain has been conned, well and truly.

Where did all the money go?

By no stretch of the imagination could the public sector be considered to be starved of cash. In the eight years between 1999-2000 and 2007-2008, public spending in Britain rose by 29% when adjusted for inflation.

Even so, the local police station that was once open 24 hours a day, seven days a week, is now open only between 8am and 4pm and closed all day Monday. The local sub-post office is closing for good, the library is short of books, and the weekly refuse collection is fortnightly.

Voters supported the increase in spending: they had been unhappy at the shabby state of the public realm in 1997 and wanted to see extra investment. They now want to know what has happened to all the money.

The government's answer is twofold. First, it says the money has led to an improvement in services, which is true but only up to a point. Given the colossal increase in spending - particularly on health and education - it would have been miraculous had there been no benefits; the question is whether the improvement matched the scale of the investment. Sad to say, it does not. In the NHS, for example, productivity has been falling; in education, there is no evidence that extra money has meant higher achievement. The government argues that, after the hard rations of the 18 years of Conservative rule, it will take time for the extra money to show up in higher productivity.

While stretching the boundaries of plausibility, this explanation is a lot more convincing than the second reason for the economies made by ministers, namely that they have a duty to make sure that precious resources are spent as efficiently as possible. If that means temporary opening hours at police stations that might have only two callers a day, or the closure of "uneconomic" post offices, then so be it.

This is undermined by the glaring examples of New Labour's non-efficiency once big corporate and financial interests become involved. These include the £2bn bail-out for the failed Underground maintenance contractor Metronet; the doubling of the cost of the new IT system for the NHS from £6bn to £12bn; and the systematic closure of hospital beds to pay the fees on Private Finance Initiative contracts.

Clearly, there have been beneficiaries of the surge in public spending over the past eight years. It is, however, not immediately apparent that the real gainers have been either the public or those at the sharp end - the nurses, the refuse collectors, the librarians, or the police.

Labour used to be accused of allowing producer interests to "capture" the public sector. It is still open to that charge. But now the producer interests in question have bigger salaries, drive more expensive cars, and appear to have been singularly unsuccessful in delivering for the public.

© Larry Elliott and Dan Atkinson 2008.

· Extracted from The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future by Larry Elliott and Dan Atkinson, to be published by The Bodley Head on Thursday, price £12.99. To order a copy for £11.99 with free UK p&p go to theguardian.com/bookshop or call 0870 836 0875. For more information see the authors' blog at www.thegodsthatfailed.co.uk.

· This article was amended on Tuesday June 3 2008. In the article above we mentioned Public Finance Initiatives. We meant Private Finance Initiatives. This has been corrected.