Tory leader Michael Howard accused the prime minister and his government of letting the country down and resorting to higher taxes to solve its problems.
Mr Howard says Labour is 'running out of steam'
He said the reaction to the Queen's Speech would be "one of disappointment" and claimed New Labour had wasted the last six-and-a-half years.
His party backed proposed measures on child protection and domestic violence.
But he said Mr Blair and the home secretary should be "ashamed" of provisions in their latest Asylum Bill.
'Not a lot' achieved
In his first response to a Queen's Speech as Tory leader, Mr Howard said: "They have run out of ideas, they have run out of money and they are running out of time."
He conceded that his party would study the draft Disabilities Bill and supported "the principle" of a Civil Contingencies Bill, following recent terrorist attacks in Turkey and other places.
"But while we welcome some of the individual proposals in the Gracious Speech, the overall reaction to it, even, I suspect, on the benches opposite, will be one of disappointment," he said.
The government was elected with "great promise", with a "sweeping mandate", had "the world at its feet" and "a vast parliamentary army ready to carry forward whatever measures it proposed".
Mr Howard prompted laughter when he quipped: "And what has happened? In the words of Paul Daniels: 'Not a lot'."
The Tory leader turned on the government over its latest asylum bill, which he claimed had "gone further than any civilised government should go".
He accused ministers of proposing to "use the children of asylum seekers as pawns to cover up their failure to get a grip on their asylum chaos".
"Children of asylum seekers are to be taken into care in order to force their parents to leave the country," he said.
"You and the home secretary should be ashamed of yourselves," he said to Mr Blair.
"We shall oppose any legislative provision that seeks to give effect to this despicable provision.
"And I have no doubt that when we do, we shall be joined in the lobbies by many MPs on the government benches, who unlike you and the home secretary, still retain their self respect."
Mr Howard drew merriment with his attacks on the prime minister and particularly over his dealings with Chancellor Gordon Brown.
He said the current state of the pair's current relationship "makes you wonder who is the leader and who's being led.
"Real prime ministers lead their chancellors, you follow yours," he told Mr Blair.
"You may strut your stuff on the world stage, but when it comes to domestic policy, never in recent history has a prime minister been so weak, so feeble, so utterly unable to do what he wants - and all this with a huge majority in this House.
"How utterly humiliating for you, and how very damaging for our country - outmanoeuvred by a politically obsessed chancellor."
'Absence of reform'
Mr Howard said the government's plans for pensions would "do nothing to tackle the main causes of the pensions crisis".
And he questioned what had happened to Labour's manifesto pledge in 2001 not to introduced university top-up fees.
In the "absence of real reform" of public services, the government's only answer was "higher tax".
"When that fails, it can only turn to higher taxes still," he said. "They approach every problem with an open wallet and an empty mind. They are taxing and spending and failing."
He said Labour had "promised far too much and has delivered far too little" - it was now "incompetent" and knew it had failed.
Back to Mr Blair, he stressed: "After six-and-a-half years, you have lost your grip and your government has lost its way. You are running out of steam and you know it."
'Unequal to the task'
Mr Howard asked why time was being "wasted" on a draft Single Currency (Referendums) Bill when "no-one believes the government will call a euro referendum".
He continued: "We need better schools, but this government gives us top-up fees. We need safer streets, but this government just abolishes the lord chancellor. We need improved hospitals, but this government gives us legislation on the euro."
"You and your government are simply unequal to the task," he told Mr Blair.
He said the next government that boosts the economy, implements serious reform of public services and gives real power to people will be a Conservative one.