Halfway down the list of 130 separate ways to save £65m this year, printed in Durham county council's 108-page medium term financial plan, is a £1.7m cut to road maintenance projects. Which is partly why engineering technician Daniel Lee finds himself at home, newly unemployed, smiling at his two-week-old son and wondering how the mortgage will get paid.

Over the next three years the council plans to shrink its workforce by about 1,600. Around 700 positions have already gone, through voluntary redundancy or jobs being frozen, but the impact of cuts to local authority budgets has repercussions that ripple far beyond the employee roll at county hall.

In the year since the coalition's Comprehensive Spending Review imposed unprecedented cuts on local authority budgets, the consequences have been felt most keenly in deprived areas that rely heavily on state services and public sector jobs, places such as the former steel making town of Consett, which has never fully recovered from the closure of the British Steel works in the 1980s.

Some of the consequences of the era of austerity are instantly visible. The county court closed its doors this year, and the building has an optimistic sign fastened to its brick wall, declaring "redevelopment opportunity". Connexions, the government-funded careers advice service for young people, shut in August (and now has an Offices To Let board hanging from it). Its departure is particularly lamented by local people in the light of last week's unemployment figures which revealed that unemployment among 18-24-year-olds in the area has risen by 13% in the space of a year and now stands at 35%.

Consett's civic centre, symbolic of state-funded attempts to revitalise this community in the wake of the industrial collapse of the 1980s, has been shut down, and its building awaits demolition, replaced by a much smaller drop-in centre in the town centre. The police station has closed its custody suite to save money, and suspects are now being driven to police cells in Durham, 20 minutes away. A key bus service linking nearby villages to the town has also been cut back.

There are more hopeful projects on the horizon. A substantial building project is due to begin next year, when work begins on an academy school and a leisure centre, bringing an investment of around £45m to the town, which Durham county council says will be a "big boost for Consett in years to come". Plans for a new out-of-town Tesco will also create jobs once the project has been completed, but the positive effects of this future influx of money have yet to be felt.

Meanwhile, concerned by evidence of a growing need, the local Salvation Army launched a drop-in food parcel service for Consett residents two months ago. Mark Sellers, who runs the charity at the red-brick Victorian building headquarters (carved with the motto "To Conquer the World With Blood and Fire"), said the project was a collaboration between five other churches, whose parishioners were increasingly aware of families and young people in financial trouble.

"Without being political, I think it's as a result of the recession and the cuts and the changes to way benefits are dished out ... it can often take five or six weeks for an adjustment in benefit to filter through and people find it very difficult to get crisis loans," he said.

Standing in the converted attic of the building, covered with shelves packed with tins of beans and peas and rice pudding, UHT milk, cereals, tea, rice, and tinned meat pies, he adds apologetically: "It is not a la carte stuff."

Amy Wilmott, the headteacher of Consett junior school (which has seen its budget for building work cut by 80%), said she had noticed that the number of pupils making voluntary contributions to help pay for school trips had declined over the past year, as had sales of tickets to school shows – a change she attributed to increasing financial pressures faced by parents.

Some of Consett's inhabitants appear visibly to be struggling financially. On Thursday mornings, residents set up impromptu stalls on the pavement of the pedestrianised main shopping street, selling their unwanted belongings – old prams and used DVDs.

But beyond the food bank and the abandoned council buildings, most of the consequences of the spending cuts are less immediately visible. Unlike the 1980s when there was a huge sense of solidarity when thousands lost their jobs because of the steelworks closure, the impact of these cuts is felt in much more fractured and subtle ways, and is often hidden.

People such as Daniel Lee, 28, who lives in a village outside Consett, are grappling with the sensation of being unemployed for the first time. With 11 years of experience in the engineering industry, he would normally have expected to find work relatively easily after losing his job in August.

"It's dead in my line of work. I'm thinking of maybe applying outside of the industry, of maybe taking a lower salary, and taking a Saturday job to make a bit extra. Things are so dire I would take anything. I've applied for a job in video game retail," he said.

He understands why the work he is trained to do has disappeared. "The council would much rather scrap the roads schemes than cut the NHS or schools. For the past two years we could see that public sector schemes were drying up – building, drainage and roads projects," he said.

His wife used to work in the same industry, but two years ago set up her own child minding business, which failed because of the recession. "Everyone lost their jobs and they didn't need any childcare," he said.

There are many houses up for sale in the cheerful housing estate where he lives; the house a couple of doors down was repossessed when the owners could no longer afford the mortgage, and Lee knows it would be difficult to sell the house now if he had to.

He has found the experience of visiting the job centre "quite sad", particularly seeing people who have been going there for so long that they are greeted like old friends by staff. "It was a tricky time to lose a job, a month before my baby was born," he said, looking momentarily frightened before collecting himself and finding something positive to say. "Luckily we had another boy so we are recycling 100% of the older son's clothes and toys. We were quite lucky in that sense."

He steps over the wooden train track on the floor, brushing past the cat and missing the toy cars to carry the baby to the corridor, so he can gather up his older son, who is sliding backwards down the stairs. His wife is resting upstairs, recovering from the caesarian. The payoff from his old job will cover him for two months.

"It seems hopeless, it really does. It really is hopeless up here," he said.

A few weeks ago, he consulted Anni Fentiman, a specialist money adviser with the Citizens Advice Bureau in Consett, about how he could renegotiate his mortgage and his hire purchase car loan.

"I'm seeing more people made redundant who normally I would have expected to see go straight into another job. Now there just aren't any other jobs to go into," she said.

Analysing how her job has changed over the past year, she said she was finding it harder to get through to the Jobcentre head office, to query benefits issues, which she attributed to cutbacks in their staffing. She said she was also dealing with a much higher number of cases of people with serious illness who were being denied the Incapacity Benefit, Employment and Support Allowance, because of new test to see who is eligible for benefits and who is fit for work.

Overall staff at the Consett office have seen a 6% increase in people approaching them with debt inquiries. At the same time, though, the office has had its funding reduced as a result of funding cuts from local and central government so that it is now open for just two rather than three days a week.

"That means we can't help as many people and there are longer waiting times, currently around three to four weeks, and given the stress and ill-health that debt worries cause, it's not a good idea," Cliff Laws, chief executive of the local CAB, said.

The YMCA is also struggling with funding problems, and its dynamic head, Billy Robson, who a year ago was confident that the organisation could handle anything thrown at it, is now finding it difficult to maintain the optimism that is a requirement in his role as a youth leader. His role is to motivate and inspire, but he is feeling unusually gloomy – particularly about the dwindling opportunities available for the large number of Neets (young people not in education, employment, or training) that he sees. There are not many jobs available in the area, he said, except for low-paid, short-term factory jobs and even these can be difficult to get.

"It's soul destroying listening to people not getting jobs. There is a sense of despondency that is going deeper and deeper. This is the biggest struggle since when British Steel closed down," he says. "I want to be upbeat, but when I have to start paying staff off it's hard to be positive."

Over the past year, the organisation has applied for around £1m worth of funding from organisations Northern Rock, Greggs, National Offender Management Services and not been successful in any of the applications, he said. Because local authority funds have been cut, charities are competing for the available private sector money.Funding shortages mean that Robson is having to lose David Richardson, a 43-year-old outdoor activities instructor, who is wondering whether he will have to sell his home, rent it out or move back in with his parents.

"You can't even sell houses at the moment. My parents are in their 80s so that would be a last resort," he said. He is considering factory work in one of the nearby food packing factories. "You can hold out for a while for the job you have trained for, but after a while your money runs out."

But he is not upbeat about the prospects of long-term work. "They take you on for three months trial and in my experience, you tend to be there for three months on the minimum wage with no rights, and then when your trial period is over they let you go."

In the YMCA's pool room, a number of unemployed young people who are supported by the charity were eating sandwiches.

Modest and self-effacing, Matthew Breeze, 20, was unexpectedly understanding about why he didn't get the last job he applied for – as a short-term Christmas staff member at the Consett Game store.

"Unfortunately my application wasn't successful. I phoned up for feedback and they said the interview was perfect but there were people with more retail experience. I did feel a sense of achievement to get an interview ... when you think of how many people will have applied for that job," he said.

He has a handful of GCSEs, Cs and Es mainly, and after leaving school did a two-year administration diploma, "learning about digital applications, emails, Microsoft" and hopes to get a job in admin or retail. Since then he hasn't been in work, but has applied for about two jobs a week, a total of between 150 and 200, he said. At the moment he is applying for jobs in the Consett area, because travelling to Durham or Newcastle by bus costs around £10 a day, an expense he doesn't feel he can afford.

"Getting interviews picks you up a bit but you feel down when you don't get the job. I think I've had about 20 interviews in two years," he said. He would like to be able to give a bit of money to his parents, his father who is a hospital cleaner and his mother who works part time as a dinner lady.

"My parents are supportive. If I was working I could help out around the house more," he said.

The local MP, Labour's Pat Glass is particularly worried about young constituents of Breeze's age.

"In my constituency youth unemployment has risen by 13% in the last year, it's at the highest rate for 17 years. 35% of JSA claimants are aged between 18 and 24. That's a huge number of young wasted lives," she said.

A series of central and local government cuts have combined to make life more challenging for this generation, she said. The end of the Education Maintenance Allowance (which was often used towards transport costs to travel to college in this area), along with Durham county council cuts to free transport for 16-18-year-olds from home to college, have made it difficult for many to travel out of Consett to study.

"If you want to do A-levels or repeat your GCSEs you have to go out to Durham – which costs approximately £10 a day, the buses take about an hour and finish at 6pm. It has left young people in a very difficult position. There are no jobs, and 35% unemployment. The tripling of tuition fees means that higher education is just off the table. There are 10 people chasing every vacancy in the area," she said.

She spent last Friday night with the local police on an underage drinking campaign. "We poured out about 10 litres of wine and vodka. I was amazed. I really didn't think it was that bad. This is what you get when you have young people who feel that they have no future. There was a sense of what's the point?"

A former careers' adviser who worked for the now closed Connexions service in the town, helping teenagers understand the best way to get a place at college and a job, was dismayed that her local authority-funded position had been terminated.

"The government didn't think that the careers services was effective. They plan to bring in a national careers services, but in a lot of places Connexions has been disbanded before the new system has been introduced. There will be a large gap for people who are 15 and 16 now. Our young people have difficulties that people in richer areas don't have. They deserve this service.

"The cuts have a disproportionate effect on people who live in areas where there is social deprivation," she said. Because she hopes to be redeployed by the council into another job, she asked not to be named.

"Everyone thinks their own job is indispensable, I understand that, but with the level of youth unemployment that has just been announced, this lack of support is only going to make things worse."

The head teacher of St Bede's Catholic secondary school, Maria Matthews, was concerned that the council's decision to stop providing free transport for pupils from Consett to the school in nearby Lanchester would mean that less well-off students would no longer be able to study there.

'Poorer families won't be able to afford to come," she said. "I don't want to become a middle-class school. We want to be a school for the whole community; we want to be able to look after the most vulnerable children."

Only Chief Inspector Ian Butler at the Consett police station, said that the spending cuts had had a positive impact on services. He argued that despite a two-year recruitment freeze, and the loss of about 250 police staff member across the force, frontline services had not been affected because changes to the way the force operated were making things more efficient.

"There was a lot of uncertainty. There have been fundamental changes and staff have felt very vulnerable because of the government's position in regard to pay and pensions. But in policing we have a can do attitude," he said.

In the Durham county council offices (where the logo Making County Durham a Better Place is prominently displayed) the council's Labour leader Simon Henig concluded the cuts were doing precisely the opposite.

"Generally I am starting to think I am living in the 1980s all over again," he said. The key difference was the fragmented nature of the fallout from the cuts. Because the council has identified 130 different ways to save chunks of money, everyone is affected in a different way and concerned about different cuts. The council has been at pains to preserve services for some of its most vulnerable – the elderly and children in care – but beyond that, those most dependent on council services are the most affected, and usually not prone to noisy protests.

"My feeling is that it is much more hidden. There are a lot of young people struggling to find their first job, living at home with their parents. These are not people who make themselves visible in the community, or write letters to the Northern Echo," Henig said.

Savings already underway include a £300,000 cut to the Education Psychological Service; reducing the amount spent on Special Education Needs Supports Teams by £42,500; cutting the Local Enterprise Growth Initiative – which included programmes to tackle employability across County Durham – by £3,189,600 and reducing the area's weed spraying operation by cutting £104,000 from the service.

Henig said the investment of £45m of central and local government money for the new academy and leisure centre would have a positive effect on the town once building works started next year, although few jobs would be created because they projects were replacing an existing school and sports centre.

"What makes me angriest is the suggestion that cuts are easy to make because all this money was being wasted by councils.

"The government has got away with it by devolving blame to the local authorities. We pick up the blame for reducing the bus services. These feel like local issues. Everyone uses different baskets of services, and there are 130 different saving lines," he said. This has meant that there is no unified voice of dissent. "That's why the government has been let off the hook."

• This article was amended on 19 October 2011: A reference to Consett as a steel mining town has been corrected.