JACK McCONNELL has threatened to scrap underperforming councils after local authority leaders defied his demand to keep down council tax bills.

The first minister has lost patience with council leaders who are expected to announce local tax rises of about 5% this week. The rise is double the limit McConnell set last year and twice the rate of inflation.

The first minister believes some councils are wasteful while others are too small to deliver services effectively.

A source close to McConnell said there was “no justification” for Scotland retaining all 32 councils and warned that some will be abolished unless they get their financial affairs in order by next year.

Ministers believe there is no need for three separate councils in Ayrshire and that Clackmannanshire could be amalgamated with Falkirk or Stirling.

There is also concern at the number of separate councils around Glasgow and the wide variation in council tax rates.

That could put the future of East Renfrewshire, West Dunbartonshire, East Dunbartonshire, North Lanarkshire and South Lanarkshire in doubt.

The threat of scrapping some councils will cause alarm to thousands of voters.

Parents in East Renfrewshire, which boasts the most successful state schools in the country, will be concerned at the prospect of being absorbed into Glasgow, which has one of the worst records of academic achievement. However, some Glasgow councillors and MSPs would be delighted at the prospect of middle-class households being brought back into the city council boundaries, raising its tax base.

McConnell’s threat represents an escalation in the row between the executive and local authorities over this year’s budget.

A leaked letter passed to The Sunday Times reveals how bad relations have become.

The letter from Tom McCabe, the finance minister, to Pat Watters, the president of the Convention of Scottish Local Authorities (Cosla), refers to a “forthright exchange of views” during budget negotiations last month.

Councils say substantial council tax rises are unavoidable because they face a compensation bill of up to £560m to implement an equal pay agreement for female staff.

However, in his letter of January 24, McCabe told Watters that the executive expected councils to keep bills down by using some of their contingency funds which are normally kept aside for local emergencies such as flooding.

A source close to McConnell said there was “a growing sense of frustration among ministers that councils aren’t operating within their budgets”.

“No doubt they will come back next week and say, ‘Look how great we are, we’re not putting the council tax up by 5% after all, it’s just going up by 3% or 4%.’ But that’s not great at all.

“If they can’t get their finances under control we will have to look again at the number of councils there are. There was a feeling last year that it might not be necessary to reduce the number of councils but ministers are now losing patience. There’s clearly no justification for 32 councils.”

He added that councils such as Clackmannanshire were so small that they did not have the resources to deliver services effectively.

“Clackmannanshire could easily be amalgamated with Stirling, as could Falkirk. There seems little logic for the existence of three separate councils in Ayrshire, and the same could be said for the two councils in Lanarkshire,” said the source.

John Swinney, the SNP’s shadow finance minister, said reorganising local government would cause “a massive amount of disruption to the delivery of local public services” and waste millions of pounds.

“The government is short-changing local authorities and is now resorting to scare tactics and sabre-rattling because it knows it has lost the argument,” he said.

Margaret Paterson, the leader of Clackmannanshire council, said there was no justification or local support for scrapping a council that was performing well.

“The Wee County is doing very well, thank you very much. Maybe some people should look to their own performance,” she said.

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