Action 2000 says housing benefit payments, rubbish collection and meals-on-wheels are among the services that could be severely disrupted on 1 January next year.

Ten local councils in England and Scotland have been named by a government watchdog for failing to do enough to tackle the millennium bug.

No councils in Northern Ireland or Wales were classified on a critical or "red light" list based on a traffic light system of red, amber and blue.

BBC Technology Correspondent Christine McGourty: The local government and financial sector are in danger

Action 2000 gave a red coding to the following English councils:

• Charnwood Borough Council (Leicestershire)
• Restormel District Council (Cornwall)
• Hart District Council (Hampshire)
• East Northamptonshire District Council
• Rugby Borough Council (Northants)
• Warwick District Council

The Scottish unitary authorities of Orkney, East Dunbartonshire, the Western Isles Council and Argyll and Bute were also placed in the red category.

The situation is potentially more serious in the Scottish authorities as they have wider functions.

According to Action 2000's guidelines, red means there is a "severe risk of material disruption to infrastructure and that a timely rectification may not be possible".

Most authorities are in the amber category though some are classed as blue.

According to Action 2000, this means an "assessment has identified no risk of material disruption".

The blue councils include: Bromley, Camden, Halton, Hillingdon, Kingston-upon-Thames, Lewisham and Sutton.

The amber category means there is some risk of disruption, but there are plans to contain any problems.

It is feared the payment of housing benefits, child support services, rubbish collection and meals-on-wheels could be disrupted by the bug, which may damage computer systems in the year 2000.

Secrecy over 'red' financial firms

Financial services "in the red" are not being named

An Action 2000 report issued at the National Infrastructure Forum on Monday also identified a number of financial institutions as being in the red category.

It did not name the organisations but this may change later in the year.

Michael Foot of the Financial Services Authority said it would be wrong to name them now, because that would create a crisis of confidence.

He said that if the companies failed to improve they would face sanctions such as not being allowed to accept new business, having individual accounts transfered to other companies, or even complete closure and the transfer of all business.

'Blue sea'

Action 2000 Chairman Don Cruickshank said that overall the figures indicated a "sea of blues".

Mr Cruickshank pointed out that the failing councils represented only 2% of the total in England and Wales, and 12% in Scotland.

But he added: "I am very concerned that there are still reds at this stage."

Until now, hospitals and police services have been at the centre of concern.

A huge amount of high-tech medical equipment has had to be checked to make sure it will not fail when the date changes.