Labour leaders on the local authority will call on Kate Dean, the Liberal Democrat leader, to step down over the mounting budget crisis at the city.

They will challenge the SNP, who are keeping the Lib Dems in power in Aberdeen, to withdraw their backing for Dean.

City leaders have been at the centre of controversy over spending plans that will result in them cutting £27m from budgets. Spending watchdog the Accounts Commission plans to conduct a public hearing into the city's affairs later this month.

The call will come at this Wednesday's meeting of the full council in Aberdeen. Willie Young, secretary of the Labour group on the city council, said: "We are calling on Kate Dean to stand down as leader of the council over her failure of leadership. We don't take this lightly, but it is the only way forward for the city.

"If anyone from our group had had such a failure of leadership then we would not expect anyone to work with us until we had changes at the top. Her attitude has been to leave things to officials. But she has a role to lead them."

He added: "There is nothing personal in this. There is nothing wrong with her as a person. But she is a failed leader.

"When we ran the council, we managed to turn in a surplus. They have turned that surplus into a huge hole in the city finances."

Dean was unavailable for comment.

The stricken administration has been dealt another new blow by a letter from a leading academic. Joyce Lishman, head of the School of Applied Social Studies at Robert Gordon University Aberdeen, hit out at the running of the city.

In a letter to the Accounts Commission, she said: "I have tried frequently to understand the leadership, management and therefore accountability structure of the current city council and have failed, and suspect that if I worked there I would really not know who was leading me and who I was accountable to."

Last week it emerged that the council was planning to defy the Scottish Government by retaining class sizes at their legal maximum, despite ministers' moves to reduce the maximum numbers of children to 18 per class in early primary school.

ANALYSIS

Counting the cost as Aberdeen hits rock bottom

Charlotte Thomson

A DESPERATE teenager, battling drug addiction, turns up at the door of a leading homeless charity. Aged 17, she has escaped the clutches of her drug-addled mother, who has for many years sent her daughter out on to the streets to work as a prostitute.

This is the story of just one destitute youth who has become homeless, through no fault of her own, on the streets of Aberdeen.

As the home port for the North Sea oil industry, Scotland's third largest city has seen its wealth grow in the past 30 years, with low unemployment levels and little poverty. But, as in any city, there are those who slip through the net into addiction and destitution.

These vulnerable Aberdonians are now experiencing further suffering, as a result of disastrous years of overspending by a local authority which has plunged deeper into the red year after year.

The finances of Aberdeen City Council have now been called to account following drastic budget cuts of £27m.

But this may have come too late for the many charitable organisations affected by its decision to claw back money from a range of vital services – groups such as homelessness charity Aberdeen Cyrenians, which said that an £880,000 budget cut has forced it to sack a quarter of its staff and cut back on its good work.

The charity's chief executive, Paul Hannan, said the organisation has been helping hundreds of homeless people in the city, many of whom "do not fit the criteria" to use other services.

"Essentially, the scale of this (cut] means we have to close three residential projects providing accommodation and care for a number of people," he said. "This will affect around 50 people who use these projects.

"Many of these people, who need urgent help addressing drug or alcohol problems, will not get the treatment and support that they need. We are not just about providing a roof over their heads – we offer a range of services to help people back into employment, repair relationships that may have broken down and give housing advice.

"A lot of people who use these services have been abused by their families or partners and have low self-esteem; many even contemplate suicide. That's where the help from our staff is crucial."

Aberdeen Cyrenians are by no means alone, and last month 2,000 people marched through the city centre in protest at the massive cuts in council services, which include the removal of £650,000 funding from the local Glencraft factory for the blind and disabled.

The Choices Day Centre, which provides respite care for 56 physically disabled people, will close its doors on June 2 to save £240,000 a year.

One of the centre's users asked the Court of Session in Edinburgh to order the council to put its plans on hold. It was believed to be the first time in Scotland that such action had been taken under new disability legislation but, in a key decision, the move was rejected on Friday. Elsewhere, Alcohol Support was only able to keep a pioneering service providing temporary accommodation for alcoholics when private funding was found.

The local authority's plans go much further than withdrawing funds from local charities, however. Several schools in the city and are to close or merge, and parent groups insist larger class numbers will have a detrimental effect on children's education. The city's ice rink has also shut and other sports services have been cut in a desperate attempt to save cash.

The SNP-Lib Dem administration blamed the cutbacks on the previous regime and claimed they should have been given a fairer settlement from the Government.

But the Accounts Commission for Scotland launched an inquiry this week over concerns raised in the city council's recent Best Value Audit and Community Planning Report.

Its purpose was to assess how well the local authority was performing and what improvements had been made, but instead it identified "serious weaknesses in governance and accountability".

The hearing, held in the city's historic Town House,

took evidence from the council's chief executive, Douglas Paterson, leader Kate Dean and deputy leader Kevin Stewart. Local organisations presented a damning dossier of negligence and mismanagement claims against them. This revealed low staff morale, incompetence, illegality, recklessness, bullying, lack of rigour and a disturbing willingness to take a gamble with council taxpayers' cash.

So how did it get so bad? Why did no one see what was happening and step in? What are the damaging consequences for Scotland's third city? And how can Aberdeen start to repair the damage and regain its position as one of the richest cities in Britain?

The Federation of Small Businesses in Scotland fears the cuts will affect a large number of businesses in the city, leaving a "bad flavour" in the mouths of those trying to work through the problems.

Aberdeen branch chairman Andy Willox warns: "The business community as a whole is upset. We're ambassadors for the city – the cuts are not good news for the business sector.

"The closure of services will have a disastrous knock-on effect on many small businesses trying to make a living. The closures will cut back the work of contractors such as plumbers, and computer maintenance firms – everyone is affected.

"The cuts have become a hot topic of conversation which has left a bad flavour in the mouths of all involved. The Trump (golf resort] situation was bad enough and will affect inward investment, particularly in the oil and renewable energy sector. Unfortunately, it sends the message out that Aberdeen is closed for business."

Paterson sensationally quit his post before he was grilled over claims of mismanagement at the Audit Commission hearing on Tuesday.

His announcement that he would retire a year early followed calls from the public for him to step down.

The 58-year-old had been head of the council for 12 years, in charge of more than 11,500 staff and an annual budget of £350m, before his leadership skills were called into question. He introduced radical new structures with the aim of improving on citizen care as well as encouraging local residents to become more involved in their community.

Paterson said that he had "rolled up his sleeves to work with any level of staff" during this time. When he announced his departure, he said that "as in any job, it has had its moments but the highs far outweigh the lows". It was evident, however, that his vision for the city's future had fallen far short of what it could afford.

Last week Paterson was forced to publicly explain why around £11m of the city's reserve kitty had been squandered trying to keep services afloat.

There was little he could say to explain the council's errors, but conceded that he had trusted the judgments of his management team, who further embroiled the local authority in controversy when it emerged they had sold off council properties at below market value.

Audit Scotland investigated six controversial property transactions between 2001 and 2007, including the disposal of Carden House, the Seafield Club and a multi-storey car park behind Union Street. It concluded the council should have achieved far better prices.

Willox said he and many others had been left utterly confused as to how the council could have sunk to such depths of despair over a period of several years, without any outside intervention.

"It's certainly very worrying to find that this has gone on for so long unchecked," he said. "As a businessman myself, I know I have to balance the books every month and can only spend as much as I earn – but, as a business owner, considerably less, so I still make a profit.

"So how this spending could have gone on undetected is quite baffling. Quite frankly, I'm mystified over how this problem has managed to get so far. This will be a difficult situation to repair – it has certainly damaged Aberdeen's reputation, but I believe, if the council closely monitors its financial situation, it can be done.

"The council has to get its finances in order, for everyone's sake. It's a case of learning lessons and going to all lengths to make sure this does not happen again. As of yet, the public has very little idea of what went wrong but we're just hopeful this inquiry will get to the bottom of it."

Meanwhile, those who are counting the cost in terms of shattered lives, say the council must regain the public's trust.

Choices Day Centre spokesman Kevin McCahery said: "This has been a very difficult time for us all, but the worst part was that it was just sprung on us. There was no discussion held with any of the groups involved.

"The care centre provided so much for the disabled community but it has now been taken away from us. The council announced its closure unexpectedly through the media – this was the greatest insult of all."

As yet, the council has given little explanation as to its reasons for the closure of some of its most vital services. The public inquiry has now ended, and the whole city awaits its findings.

But for some, the immediate impact has had a devastating effect, and it seems there is no way back. This week, Cyrenians' Paul Hannan began the unenviable role of organising redundancy packages for dozens of hard working staff.

"The situation has left me angry," he admitted. "I can't for the life of me understand why the city has come down in such a way on the most vulnerable in our society.

"The role of public services is to help people help themselves. To be quite frank, I find it hard to find the actions of the council anything less than morally disgusting."

Balancing the books

Aberdeen City Council's £50m overspend between 2002-2007 led to the Accounts Commission probe and drastic cuts that will affect the whole city.

• The education budget has been cut by £2.5m. Around 5% of staff are to be shed from schools. Some headteachers claim they will be forced to reduce teaching hours so will introduce more study periods for fifth and sixth year pupils.

• The £880,000 cut from the Aberdeen Cyrenians budget will hit the estimated 2,500 homeless people in the city.

• The city's oldest swimming pool was closed last month. The 68-year-old art deco Bon Accord Baths was subsidised to the tune of £842,000.

• The city's only ice rink is to be closed for 18 months to save cash. The Linx Ice Arena will undergo a £1m revamp before it will open again.

• The city's Choices Day Centre which provides respite to dozens of disabled will close on June 2 because the council called a halt to its funding. Many of its users are people with learning difficulties who are terminally ill.

• The future of around 56 blind or disabled workers at the Glencraft furniture factory in Aberdeen is also under threat with the withdrawal of £650,000 of annual subsidy.