Local authorities are preparing to invest in charity-run food banks to cope with an expected deluge in demand for crisis help from low income families hit by welfare cuts, raising the spectre of depression-era US “breadlines”.

Cuts next year to the social fund, which provides emergency aid to vulnerable people, mean that from April 2013 many councils will no longer be able to provide cash help to applicants. Instead they will offer “in kind” support such as referring clients to food banks and issuing electronic food vouchers.

The move, which is being considered by both Labour and Conservative councils as well as the Welsh government, will for the first time build voluntarily donated food distribution into mainstream welfare provision, and will be regarded by critics as a dramatic substitution of the state’s obligations in favour of ad hoc voluntary assistance.

There has been rapid expansion in food banks over the past two years in response to growing numbers of people unable to feed themselves or their families as a result of rising living costs, shrinking incomes and welfare benefit cuts.

The vast majority of food banks do not currently receive direct state funding, and are regarded by ministers as exemplars of the “big society” approach to social problems. They are volunteer-run and exist on public food donations sourced through churches, companies, schools and public “bin collections” organised outside supermarkets.

Labour-run Lambeth council in south London said it was seeking to invest cash to build capacity in two local food banks to help it cope with a “frightening explosion” in crisis need at a time when its resources were rapidly diminishing.

Lib Peck, the council’s cabinet member for regeneration and housing, said: “It’s absolutely not a road any of us feel happy about going down. It’s reminiscent of 1930’s USA. But we have to provide for as many people as possible.”

The Labour MP for Bristol East, Kerry McCarthy, said it would it feel as if a “line had been crossed” if the state were to start funding food banks as a way of addressing unmet welfare need.

She said: “People should be able to feed themselves without having to go to a food bank. Food bank growth is phenomenal, but if it becomes a mainstream part of welfare provision something has gone awry. We should be discussing the underlying problems, rather than sticking plaster solutions.”

But many Conservative-run local authorities will welcome the move to provide local crisis assistance, which ministers say go “to the heart of localism and the big society agenda.”

Chris Mould, the executive chairman of the Trussell Trust, a Christian charity which runs Britain’s biggest food bank network with more than 200 local branches, said it had been approached by the Welsh government and a number of local authorities in London to discuss “deliverable and practical” emergency food assistance part-funded by the social fund.

The trust did not object to taking state funding in principle, he said. Its food banks were already helping thousands of people referred to them by councils and welfare advisors after being turned down for crisis loans.

But Mould said the move could be risky for the charity, which was not designed to provide large scale welfare assistance. He was also concerned that the public would be less likely to give food if the trust was seen to be delivering a service regarded as the responsibility of the state.

The government spent £230m on crisis loans in 2009-10. But under the Welfare Reform Act, responsibility for administering this spending will be devolved to 150 English councils. They will share a pot of money set at 2005 budget levels – which could be less than half the 2009-10 figure. That money will not be ringfenced – meaning that councils can spend it on other services if they wish.

Ministers argue that the recent growth in crisis loan spending has become financially “unsustainable, and devolving it to local level will help prevent what the government calls “widespread misuse of the service. The largest group of crisis loan recipients were young unemployed people, who were typically awarded £50-60 loans, repayable through their benefit allowances.

Conservative-run Kensington and Chelsea council in London is proposing to issue credit-card style vouchers – or “gift cards” – in lieu of crisis loans, enabling recipients to buy items at certain shops, likely to be big retailers such as Tesco, Argos and Sainsbury’s. Some councils will put blocks on the cards preventing the purchase of alcohol and cigarettes.

Others are investing money in local credit unions, to whom they will refer crisis loan applicants in an attempt to prevent them turning to loan sharks. Households who would previously have been eligible for a community care cash grant will be instead offered vouchers for reconditioned beds, cookers and fridges redeemable at furniture recycling charities.

But it is the plans to refer crisis loan applicants to food banks that will cause most controversy. Experts say the experience of food poverty in the US and Canada, where charity food assistance has become a significant element of the welfare system, shows that while food banks are popular with volunteers, they can be inefficient, unreliable and fail to address the underlying causes of food poverty, such as low pay.

Liz Dowler, professor of food and social policy at the University of Warwick, said: “Despite their apparent ‘win-win’ appeal to some councils, foodbanks conceal realities of poverty and hunger. They let the state off the hook from their obligation to ensure all have the means to live, and from showing political leadership to grapple creatively with poverty.”

A Welsh government spokesman said: “We are committed to do all we can to mitigate the impact of the UK government’s benefit changes to Wales and are determined that any future arrangements for the social fund in Wales support our commitment to tackling poverty. The devolution of the funding will allow us to ensure the funds are directed towards those who are most in need.”