Neil Stock swings his Jaguar into the car park by the sandy south-facing beach and, with the sun beating down on what at first glance could be a bohemian seaside community, says: "It's embarrassing isn't it? We're only 60 miles from London, in the affluent south-east and here we are in the most deprived place in the country."

Jaywick, a ward of Tendring district council in north-east Essex, has earned the unhappy distinction of being placed first in the dauntingly named Indices of Multiple Deprivation 2010. Using statistics for income, employment, health, disability, crime and living standards, the government report ranks 32,482 neighbourhoods by local authority area according to where they stand in a national poverty league table. At the opposite end of the scale, the Hertfordshire suburb of Chorleywood, where houses cost 30 times as much as property in Jaywick, is named least deprived.

With its magnificent miles of golden sand it's hard to imagine how Jaywick stumbled first on hard times and then disappeared into the abyss. Its chalets along the shoreline look satisfyingly weather-beaten, painted in bleached pastel shades. But take a few steps inland and gaps appear like missing teeth in a smiling face.

Indices of multiple deprivation: click image to see graphic

In the Brookslands estate, the Mermaid Tavern has been torched and left as a blackened shell, as have numerous houses. Nearby, not a single shop remains open for business – even the whelks and jellied eels store on the promenade which used to cater for the summer day-trippers has gone.

The locals are happy enough to talk but don't want to give their names, "in case we get our windows put in".

Stock, the Conservative leader of the council, which is run from the town hall in neighbouring Clacton-on-Sea, looks somewhat out of place. "It is depressing being number one, because we do take this issue very seriously. It's a problem beyond the scope of a district council. We need national and European intervention."

So how did Jaywick – or more specifically the Brooklands estate – get here, having overtaken Breckfield in Anfield, Liverpool? Despite its problems, Jaywick still possesses character. It's the largest surviving example of the "plotlands" movement of the 1920s and 1930s, when land was sold off in little strips, usually to city dwellers longing for a piece of paradise.

Jaywick Sands was built in 1928 as a resort by Fabian property developer Frank Stedman. He marketed them as "chalets" but people lived in their two-bedroom bungalows all year round. One local recalled his father had bought the house off-plan at an exhibition in London.

After the second world war most plotlands were bulldozed but the Jaywick residents hung on, even going to court in 1970 and succeeded in preserving it. There is a proud tradition of self-reliance.

But the area is relatively isolated and the properties have deteriorated. A total of 62% of working age residents receive benefits, compared with the national average of 15%. It is in a high-risk flood zone.

Many of the roads are not maintained by the council and are narrow dirt tracks. Mains sewerage did not arrive until the 1980s and in some areas street lighting and pavements have never been installed.

"Eight years ago Jaywick had the highest rate of outright property ownership in the area but that has gone into reverse," said Stock. Four fifths of the housing stock is rented, with ownership concentrated in the hands of "one or two landlords" who rent out to housing benefit claimants. "The going rate is £450 a month for a two-bedroom house, which these qualify as. Because of their state of deterioration there's no deposit required, so we are attracting people from miles away to live here," he said.

Those incomers aren't necessarily what an old community like Jaywick needs. Anne Dewart moved here in the 1970s, paying £15,000 for her house. She wanted to escape London and found a job in a local factory making waxed-cotton jackets. "But when that closed down you had to go to Colchester to find work, which a lot of people didn't want to do or couldn't," she said.

"It's like most places in that you get your good and you get your bad. But in every one of these streets there will be one person who thinks they own the road.

"And for that reason a lot of the houses were going up in flames. The attitude was 'If the police won't do anything about it, we will'. But it does seem to have calmed down. The kids are destructive but to be honest there's nothing for them to do and they get bored."

Anne strokes her Alsation pet dog 'Fella'. "That's why I've got him. Mind you, he was stolen from me as a puppy. The police knew which drug-dealer took him but they wouldn't do anything. I only got him back because someone went round and said 'Give him back or your legs'll get broken' and miraculously the next morning Fella reappeared.

"I had a stone bench stolen from outside the house and nobody saw a thing, funny that."

Stock says it's a housing problem. "The Guinness Trust came in and built some lovely new houses on the edge of the estate.

"But as soon as they'd decanted families into the new homes the old ones filled up. I'm afraid the old ones have to be pulled down as they become vacant."