Britain faces a surge in drug addiction, alcoholism and domestic violence as the second wave of the recession and rising unemployment take a grip, the leading public sector watchdog warns today.

Councils are not doing enough to prepare their communities for the fallout as the impact of more business failures, bankruptcies and the soaring jobless toll leads to deepening social and human problems, the Audit Commission reports. The watchdog, which monitors the performance of local councils and services, says that most authorities already face extra demands for benefits, welfare and debt counselling. One in three has extra pressure on social and mental health services, and on state school places from parents who can no longer afford to educate their children privately.

Official figures today are expected to show unemployment among young people breaking the million mark. Some 30 per cent of 16 and 17-year-old school-leavers are unemployed, the highest level since records began in 1992. Overall unemployment is expected to have hit a 14-year high of 2.5 million in the three months to June.

The Audit Commission reports that Britain is still in the first phase of the recession, which it describes as economic, with output declining and companies failing. But the country is about to face the second, social phase, where growth returns but long-term unemployment triggers a range of housing, health and domestic problems.

It says: “With families and individuals under stress, most areas are likely to witness increasing social problems including domestic violence, alcoholism, drug addiction and young people unable to find jobs. Councils may also have to deal with more fly-tipping, abandoned cars and stray dogs.”

The report finds that while most councils have taken some steps to help local businesses and vulnerable families, the impact was likely to be “modest” and few were targeting their efforts effectively. It accuses councils in some areas, particularly those that have so far escaped the worst effects of the recession, of being complacent.

Councils in the West Midlands, Yorkshire and the Humber had been hardest hit by the recession while those in the South West and eastern England had been least affected, it said. Those in deprived areas with experience of managing such problems had produced more ambitious action plans, which the commission said could be effective but were also risky.

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