The housing, communities and local government secretary, Steve Reed, has been accused by a Labour council of showing “arrogance, indifference and moral bankruptcy” towards children in social care.

In an unusually forthright attack, Labour leaders of Hartlepool council said they were “furious and appalled” at Reed after a meeting with him last week.

A cross-party delegation had asked the secretary of state for £3m to help alleviate the growing cost of social care.

The town in County Durham is one of the most deprived in England. It has the third highest number of children in care per capita in the country.

Pamela Hargreaves, the Labour leader of Hartlepool council, told the Guardian that Reed said the government would not “reward councils for having high numbers of children in care” and then “dismissed” the discussion by saying: “That’s life.”

“That comment tells you everything,” Hargreaves said. “Shrugging at abused and exploited children is not policy, it is moral bankruptcy.

“Calling proper funding for children in care a ‘reward’ is obscene and offensive. Protecting vulnerable children is a basic moral and legal duty of the state.”

She added: “Our children and our families deserve far better than arrogance, indifference and a shrug of ‘that’s life’.”

The government said it was fixing an outdated and unfair council funding system and had made £78bn available for local authorities next year, as well as a 33% increase for Hartlepool council by 2028-29.

A government spokesperson said: “Our fair funding reforms will ensure councils get the funding they need to deliver high-quality public services that local people deserve.”

Reed has said ministers were “realigning” funding so that poorer areas got 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 increase in costs and cuts under the Conservative government.

Hargreaves said their area was being failed by ministers in a system that “punishes deprivation”.

Hartlepool’s Labour group said it receives far below the national average for looked after children as part of the government’s children in social care prevention grant – equating to £6,674 per child.

They said children were being forced into expensive private and unregulated placements due to a nationwide shortage of foster carers. Each placement costs the council £13,000 to £20,000 per child each week.

Jonathan Brash, the Labour MP for Hartlepool, said the government had offered a cash increase of £3m but this was “the equivalent of funding around six children in care”, adding that it needed an additional £3m to help balance the books.

Hargreaves said scores of vulnerable families had been relocated to Hartlepool by southern councils in the past year, in effect “dumping millions of pounds of additional need into one of the poorest boroughs in the country”.

She said the government’s “high handed and dismissive attitude” reduced vulnerable children to “a line on a spreadsheet”. She added: “They are children with a legal right to protection. Refusing to fix a rigged funding system and telling deprived communities to tax themselves harder is not leadership, it is abdication.”

The group of 21 Labour councillors said in February they were considering quitting the party after being “betrayed” by ministers.

Hargreaves said a mass resignation was still possible. The Labour group is not expected to raise council tax when it finalises the budget on Tuesday.

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 coalition with the Conservatives in 2019-20.