Keir Starmer is facing a mass resignation of Labour councillors in one of England’s poorest areas over a “betrayal” of funding for children in care.

Labour councillors in Hartlepool, County Durham, said they were “between despair and open revolt” over an “unfair” cash settlement that would leave them unable to balance the books.

Pamela Hargreaves, the Hartlepool council leader, told the Guardian that her group of 21 councillors, who are in overall control of the 36-member council, were considering quitting Labour this week in protest.

“We feel betrayed. We feel let down,” she said. “We’ve worked really hard to get a Labour government and it had such promise and we expected so much more. You get left feeling how much more faith can we keep?”

Starmer is facing intense criticism over his decision on Monday to abandon plans to cancel local elections in 30 areas of England spanning 4.5 million people.

The prime minister was accused of overseeing another costly U-turn that would leave councils in disarray and expose Labour to further damaging results on polling day in May.

Hargreaves said Hartlepool needed an extra £3m to help fund its ballooning social care bill but that the government had refused. The town has the third-highest number of children in care per capita in England.

Steve Reed, the local government secretary, told the Commons last week that ministers were “realigning” funding so that poorer areas get a fairer share.

However, local government leaders have said a “significant” increase in funding is needed to stop more local authorities from going bankrupt after a huge increases in costs and cuts under the Conservative government.

Hartlepool is the sixth most deprived council in England, according to official figures, and is expected to increase council tax by 4.99% – the maximum allowed without a local referendum – for 2026-27.

The authority was won back by Labour two years ago from a Conservative-independent coalition but Nigel Farage’s Reform UK is hoping for significant gains when a third of the council seats go up for re-election in May. Its precursor, the Brexit party, briefly led the authority in a coalition with the Conservatives in 2019-20.

Jonathan Brash, the Labour MP for Hartlepool, said the government had offered a cash increase of £3m but that this was “the equivalent of funding around six children in care”.

He told MPs last week that the government’s funding settlement had left Labour councillors “distraught, despondent and profoundly worried” and that services including libraries, youth provision and community hubs would be under threat.

Hargreaves said she and fellow Labour councillors were considering resigning later this week unless the government agreed to help fund a £6m overspend on its children’s social care budget – which had risen partly as a result of other local authorities “dumping” families in Hartlepool.

She said: “£3m is all I wanted and we could have balanced the books this year and what [the government] is saying is that the hard-working people of Hartlepool – who are already paying way too much council tax – should have to shoulder that.

“That’s not the fairer funding we were promised and it’s not the government that my Labour group of councillors fought to put in power.”

Hargreaves said it was particularly galling for Labour members who had helped win back Hartlepool in 2024 after the damaging 2021 byelection, when it was lost to the Conservatives in a defeat that prompted Starmer to consider resigning as party leader.

“We’ve stomped the streets, we’ve put all the leaflets through, we carried the Labour message, we’ve gone to the people and asked them to trust us and to believe in Labour again,” she said.

“And now here we are again at the 11th hour with not enough money to fix the issues that are beyond our control.”

Asked whether a mass resignation was likely, Hargreaves said: “If it comes to that, that is something that is definitely on the table for consideration because we’re lost. Where do we go? Nobody seems to be listening.”

The Ministry of Housing, Communities and Local Government has been contacted for comment.