Something pretty extraordinary happened last week, though you could have been forgiven for not noticing. Britain turned a corner, and began what could be the journey back to a social democracy. The roll back of the welfare state, which began in earnest when Margaret Thatcher cut the link between pension increases and average earnings in 1981, has finally been challenged after 25 years.

The Turner Report on pension reform may have seemed a dry spark for a revolution, but the almost universal acceptance of its recommendations is significant. There is now a political consensus for restoring the value of the state pension and abolishing means- testing.

This will involve an increase in the size and role of the state, as the government moves to mobilise national resources to ensure financial security for our ageing population. Honouring society's debts to the old has provoked a fundamental reassessment of the state's responsibilities. And by the way, it means we're all going to pay more taxes.

But the Tories were unequivocal in their support for Turner. David Cameron said he wanted "a strong basic state pension linked to earnings and growing over time to get people off the means-test in this country". Pretty remarkable, since it was the Tories who first broke that link and impoverished an entire generation of older people.

More surprisingly, though, was the unbridled enthusiasm of the Blairite modernisers of New Labour for this costly reform, which would increase the very taxes that former Labour minister Alan Milburn insisted, during the Budget debate, were already too high. I suppose they thought that, if Gordon Brown resisted the Turner proposals, they must be right.

Gordon Brown has been given less credit than he should have been for taking two million pensioners out of abject poverty since 1997, even if it did involve means-testing. But the Chancellor belatedly joined the new consensus last week, agreeing that Turner was "90%-95%" right on the way forward.

Given his social democratic background and his support for universalism in education and health, you might have expected Brown to be one of the foremost advocates of the Turner plan - and indeed it may be he was always less hostile than appeared. But Brown is a cautious man, guardian of the nation's finances, and he was wise to follow this particular consensus rather than lead it.

However, there is one big obstacle to the new pensions deal: the pensions industry itself. Brown has been lobbied fiercely by the insurance companies who manage Britain's pensions funds. They are profoundly hostile to the Turner Report and have been mounting an expensive campaign to get it shelved.

This is because they realise that the true radicalism of the Turner package lies not in the restoration of the value of the state pension itself, but the plans for a National Pensions Savings Scheme (NPSS) intended to top it up.

Turner concluded that the private sector can no longer be trusted to manage people's savings prudently and provide security in old age. This is not just because of the mis-selling scandals - though they were bad enough - but because of the inefficient management of pension funds. Labour's low-cost stakeholder pensions for low-income savers failed because the big insurance companies simply wouldn't go out and sell them. They insisted that they needed to charge at least 1.5% on each policy annually to make a profit.

Indeed, if you take all the hidden dealing costs into account, many were charging nearer 2%. Over the lifetime of the policy, this could amount to a loss of 30% of the pension's final value. Labour had wanted a maximum 1% charge, but ministers backed down when faced by the grim faces of the financiers.

However, unlike most politicians, Turner knows the financial markets. He pointed out that the real cost of managing large funds, given economies of scale, should be no more than 0.3% - a fraction of what the pensions industry said they needed to break even.

To take advantage of real money interest rates, and not the inflated demands of the pensions industry, Turner called for a NPSS managed by the government, into which everyone would be expected to contribute 5% of their salary, with employers adding another 3% and the government a further 1%. It would be voluntary, in that people could opt out, but there would be huge pressure on individuals to contribute to this top-up fund, which would be essential for anyone wishing to have a decent standard of living in retirement.

But the implications of this are enormous. The total investment in pensions in Britain is some £900 billion - that's about a third of all personal wealth. Take this away from the pensions industry and it is going to take away a lot of the super-profits enjoyed by banks and insurance companies that underwrite it. Financial giant Deloitte said it would cost 50,000 jobs and £4bn a year. Christine Farnish, chief executive of the National Association of Pension Funds, which lobbies on behalf of the pensions industry, described the NPSS plan as a "monolithic quango" and a "throwback to the Stalinist era".

Indeed, what Turner proposed looks very like the nationalisation of most of the British financial services industry. It would also nationalise a large chunk of Britain's firms, because that £900bn is largely invested in the stock market. Instead of this being owned and managed by private investment houses, it would be owned by the public and managed by the state. I don't know if the Scottish Socialist Party have read the Turner Report, but perhaps they should.

Of course, this wouldn't be a Marxist takeover, and the financial stability of the economy wouldn't be fundamentally altered. All that would happen under the NPSS is that the billions creamed off by the financial services industry would be recycled back to the elderly in the form of enhanced benefits. They would spend this on goods and services and the productive economy would benefit overall.

For the last three decades, the state has been seen as synonymous with waste, inefficiency, bureaucracy. Privatisation has dominated economic policy - sometimes to the detriment of common sense, as in the sale of British Rail. Now, slowly, people are beginning to realise not everything the state does is bad.

Indeed, the experience of private pensions, which promised riches but delivered dust, may have shaken the British public's faith in privatisation, and brought about a sea change in attitudes. Adair Turner is a capitalist, but he may have started the long march back to British socialism.