Dr John Sentamu claimed the country has lost its way and become self-absorbed in recent decades, following the pioneering reforms that led to the creation of the National Health Service.
He agreed that Labour has repeatedly put forward new ideas to generate "social cohesion" but they had yet to be made real because ministers do not want to hand over power to residents, and instead rely on "over-hasty" laws.
However the Archbishop, the second most senior cleric in the Church of England, also claimed the current economic crisis provides an opportunity for people to look again at their priorities and admit they had been worshipping "false gods" in the financial world rather than working to improve society.
His comments in a lecture delivered to the Smith Institute, a Labour-supporting think tank, come after a series of bishops accused the Government of squandering its chance to transform Britain for the better and of pursuing policies just to win votes.
In his speech Dr Sentamu, the first black Archbishop in the Church of England who fled Uganda in 1974, described how in the first decades of the 20th century, calls for action on poverty had led to the welfare state being set up.
But he went on to say that this shared "big vision" has now been lost and that Britain has become "a society which is ill at ease with itself".
Dr Sentamu said: "I believe that one of the key factors which has contributed to our loss of the big vision for our country, has been the loss of the Empire. I am aware that this is a controversial view. But whilst Britain had an Empire, a large merchant navy, a large manufacturing industry and commerce, and significant numbers engaged in armed forces, and an expatriate Civil Service in the colonies, it encouraged an outward-looking perspective.
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