Ken Brown, the mayor of Morpeth in Northumberland, scans through the options on his local jobcentre's touchscreen computer. It is stuffy after being in the cold outside, and few new jobs have come online since he last checked. He's overqualified for the few public sector, minimum-wage posts that are available – a support worker in a local care home, a contract cleaner for the council, a census collector. He used to manage social housing projects, but work has run dry since the recession. Now he is entering his fifth month on benefits and trying as a lone parent to bring up his son.

"I've lived in the town a long time, but you never truly empathise with a bad situation until you experience it personally," says Brown. "I've spoken to other unemployed people here and I know the panic of knowing you've got a family to feed and bills to pay, or wondering whether you can afford to get your round in at the pub.

"A lot of people think I'm paid handsomely for being mayor, but the truth is it's a voluntary post. They [the jobcentre]recommended I go for a call centre team leader position but I don't have any experience of that."

Brown's situation is still unusual in Morpeth, a pretty town that is home to many middle managers. Life expectancy and average income remains high, and crime and unemployment is low.

But this way of life is precariously dependent on the public sector. With 60% of the local workforce employed by the state, the town has the highest proportion of public sector workers of anywhere in the country, according to Office for National Statistics data analysed by research group Local Futures. That compares with 12% in Crawley, 16% in Watford and 17% in Slough – some of the areas with the lowest shares of public sector employment in the UK – and 52% in Oxford, 49% in Durham and 47% in Wansbeck – which are some of the highest.

The cuts might hit the whole country hard, but some areas will clearly feel the pain more than others.

Why is public sector employment so high in Morpeth? There is no equivalent of the Sellafield nuclear plant here, pushing up statistics. Most of Morpeth's 15,000 residents are either employed directly by the state in one of the three local hospitals, Northumberland county council, the police headquarters or Department for Work and Pensions (DWP) offices, or indirectly through private providers dependent on public contracts.

Now the cuts hang like an axe about to drop over the town. The county council has already announced savings of some £100m over four years, but that doesn't even begin to include rationalisation in other public services.

"We shouldn't have got to the point when more people work in the public sector than the private," says Jeff Reid, the Liberal Democrat leader of Northumberland county council. "After de-industrialisation, the government backfilled unemployment with public sector jobs, but that meant storing up problems for the future. Of course I've got huge concerns – it gives you sleepless nights – but I'm trying to be optimistic. If previous governments have borrowed too much money, what can we do?"

Reid says he can't put a figure on the number of jobs that might be lost. "We're not going to find out what the effects will be until the public sector starts to unwind. We're now faced with a plate of very difficult decisions, and it's my government – the coalition – that's making them happen. There won't be a political place to hide."

The Northern branch of public sector union Unison is more forthcoming about the figures. In June, it received notification that 1,000 jobs could be lost from the council this financial year alone – cutting total staffing budgets by 22%. Meanwhile, local Connexions services for young people have been reduced by a third and talks are under way to merge Northumberland College, based in neighbouring Ashington, with the more distant Newcastle College, a move that is likely to put further jobs at risk. Northumbria police has announced 400 job losses and the Northumberland mental health trust has cut 50 posts. The Public and Commercial Services union (PCS), which represents civil servants, says notification of job losses from the DWP are expected soon.

"If I lost my job that would be everything," says Ian Fleming, a local resident and customer services officer at the council, who has been seconded to Unison to work on industrial relations. "I've worked in the public sector for 18 years and it's the only thing I know."

From his contact with other union members, Fleming believes that industrial action is a real possibility. "Feelings are strong and the staff are upset, they may well be willing to take strike action … We'll see what the feeling is around the national day of action in March," he says.

Private sector

Once the state steps out, it is hard to see how the private sector will fill the gap in Morpeth. Council officials are quick to point to the glittering new Sanderson shopping centre that was built with £30m of private sector investment last year. But its consumer base is clearly dependent on comfortable middle managers spending a spare bit of cash at weekends. If the bureaucrats go, it is hard to see what customers will take their place.

Guy Thomas, 32, has managed to get a job in Morpeth's private sector. "I've got a degree in health and social welfare and speak five languages, and I'm serving cappuccino in the local coffee chain," he says. "You're not going to find any proper careers around here. Over half my mates work in the public sector, a lot on the railways, and a lot of them are worried about the cuts. There used to be fishmongers, greengrocers and small traders here, but now they've all closed and it's all supermarkets and chains. Even shops like this are putting others out of business."

Thomas comes from a typical Morpeth family. His mother worked for the NHS, his father was a public sector IT manager. Most of his friends work for Balfour Beatty, the construction company that has many public sector contracts. His older brother left to join the army, and his younger brother started his own business in conservation, but it's looking shaky. Thomas says moving away permanently isn't an option because his father has motor neurone disease and he wants to be close by.

Local Futures estimates that some 750 jobs will be lost in Morpeth by 2016, a figure that is derived from national forecasts from the Office for Budget Responsibility. "Other areas, such as Birmingham, Glasgow and Leeds, will suffer much bigger job losses [in the public sector], but Morpeth is likely to suffer more because the losses represent a much higher proportion of the employment base," says Michael Dee, data analyst for Local Futures."Peripheral rural areas like Morpeth and old industrial centres are less well-equipped to deal with the cuts compared with knowledge-based economies with higher levels of private investment."

Naomi Clayton, a senior researcher at the Work Foundation, who worked on the organisation's No City Left Behind report in July, agrees: "The spending cuts will have hugely differential impacts on cities across the UK," she says. "Areas that have high levels of public sector employment, a low level of private investment and a high level of welfare claimants will be particularly hard hit. Many areas in the north of the country have seen a decline in private sector jobs over the last 10 years and have only been held up by jobs in the public sector. Those areas are now at risk."

"The comprehensive spending review made proposals for sweeping cuts, but I'm not sure if in areas like the north-east the impact of those cuts is fully understood," says Tina Drury, managing director of Castle Morpeth Housing, a not-for-profit association that manages more than 2,000 local homes. "It's easy to take things in isolation, but people will be taking the changes together. Our tenants will have lower incomes, benefit cuts, VAT increases and fuel increases and the possible outcome is a higher percentage of rents in arrears, longer waiting lists and possibly a greater amount of evictions."

What about the "big society": can't the third sector step in where the state pulls back? Reid doesn't think so. "The government seems to think that there is a huge pool of people waiting to volunteer that they can tap into, but that seems to rely on a 1950s view of Britain that belongs to Enid Blyton," he says.

As for Morpeth's mayor Ken Brown, he is still looking for work. Moving to look for employment elsewhere is difficult given his political position, and he doesn't want to disrupt his son's schooling. But, he says, struggling to find work has taught him a lot. "It's hard, but I'm definitely going to learn from this … any experience that brings politicians closer to their communities is a good thing."

• This article was amended on 3 & 4 February 2011. The original said Jeff Reid was leader of Morpeth town council. This has been corrected. The original standfirst also stated that two-thirds of residents are employed by the state. This has been corrected