“I’d like to have led the Conservative party. I’d like to have been prime minister,” confessed a disappointed Conservative politician on Monday. It is proving to be that kind of week for the Tory combatants. Today it was Rory Stewart’s turn to come to terms with the dying of his national leadership dream, as Boris Johnson consolidated his grip on the Tory election in advance of today’s next rounds.

But these words of regret did not come from Dominic Raab, Matt Hancock or any of the earlier fallers in this contest. Instead they were spoken this week by Michael Heseltine, in the final part of the BBC’s excellent five-part documentary, Thatcher: a Very British Revolution. It is what Heseltine said next that speaks most directly of all to the perhaps unsolvable problems facing today’s Tory party. If he had become prime minister, Heseltine said: “It would have been a different country.” He is right about that. But he didn’t. So it isn’t. And that is the Tory party’s problem.

Brexit is the price the party is paying for the unchecked flowering of poisonous political seeds planted under Thatcher

The scale of the crisis facing the Conservative party is not new, but it has never been more serious. It is 40 years since Margaret Thatcher arrived in Downing Street, and nearly 29 since Heseltine lost to John Major in the contest to succeed her in 1990. To many, these events will seem ancient history, noteworthy only for Thatcher’s historic status as Britain’s first female prime minister. But the Thatcher years continue to haunt the modern Tory party in malign and destructive ways, of which the BBC series was stuffed with rich examples. Theresa May’s prime ministerial calvary cannot be understood without them. Nor can the seemingly impossible options that will face her successor.

Brexit may seem like the overriding problem for the Tories. But Brexit is the price the party is paying for the unchecked flowering of many of the poisonous political seeds planted under Thatcher. She inherited a party from Edward Heath that was not just pro-European. It also supported investment in jobs, wanted increases in social service budgets, and believed in regional policy – all issues with which Heseltine was strongly associated. She bequeathed a party to John Major that was increasingly anti-European, indifferent to regional policy, and which favoured tax cuts at the expense of public spending as a matter of dogma.

‘Pro-European and pro-government intervention …’ Michael Heseltine at the 1980 party conference. Photograph: Richard Francis/Rex Shutterstock

The result – even three decades on – is a party that can barely conduct a sensible debate about anything, as the candidates proved this week. Nowhere is this more true than on public spending and the role of government. May tried to break this mould sometimes – it was one of her better instincts – but she never managed to persuade the party, Philip Hammond in particular, to do the same. Rory Stewart has stood out, until now, as he made the case for necessary taxation and spending, but only because what he says is so unusual now, even among liberal Tories, including of the Cameron-Osborne era. All the four surviving candidates have continued to act as though these realities do not even exist.

It is hardly surprising that, following Tuesday’s candidates’ debate, Heseltine told Newsnight that he felt “disenfranchised” by the current process. He is right about that, too. That’s because his kind of pro-European and pro-government intervention Tory – the Guardian’s late Hugo Young once described Heseltine as “Heath, but with children” – is simply withering on the vine. This process has been brutally accelerated by the party’s doctrinal obsession with Brexit. Same old Tories? Not a bit of it.

A YouGov poll this week underscored the stunning scale of the reshaping, of which this election is both a symptom and a catalyst. Jeremy Hunt insisted several times in Tuesday’s TV debate that the Tories are the party of business and of the union. That may have been true a generation ago, but it is more than questionable now. By two to one, the poll found that Tory members would rather Brexit took place even if it meant significant damage to the economy, even if it meant Scotland leaving the United Kingdom, and even if it meant the loss of Northern Ireland, too. A large majority of Tories even think Brexit is more important than the survival of their party. Half of them would be happy for Nigel Farage to be their new leader.

Thatcher was actually more pragmatic than is sometimes recognised. But that is not how her party remembers her. This week’s poll found that 93% of Tory members think favourably of Thatcher as a party leader, second only to the sacred Winston Churchill. Languishing at the bottom of the pile of former leaders, in Tory members’ estimation, below even Alec Douglas-Home, is Heath on 23%.

This represents an enormous shift of mentality that will not be easily reversed, even if the party was prepared to try. The Tory party used to have a practical reputation. A lot of this was exaggerated. The image was always a bit of a caricature. The Tories were always more open to ideas than they are given credit for. But the party rested on a platform of realism, too, a big example of which was Iain Macleod’s success in persuading the party not to re-privatise the National Health Service in the 1950s. By contrast, there is zero realism in a debate about Brexit between leadership candidates who have no idea how they are going to get a no-deal Brexit, which most voters do not want, through a parliament that does not want it either.

The historian Robert Saunders wrote in the New Statesman last week that Brexit has hastened a closing of the Conservative mind. That is true. Yet not all of this is about Europe. A lot derives from a banalised, often tabloid-driven oversimplification of the wider Thatcher legacy – in which obdurate leadership, a mythic view of 1940, and anti-statism have joined anti-Europeanism as among its most toxic elements. The upshot is that the Tory party has become faith-based, not ideas-open. This has happened at precisely the time when civil society in Britain has made the opposite journey towards openness to ideas and away from dogma. For that reason, however, the Conservative party may now be beyond conserving.

• Martin Kettle is a Guardian associate editor and columnist