The impact of community stigmatisation upon service usage has been largely overlooked from a social identity perspective. Specifically, the social identity‐mediated mechanisms by which stigmatisation hinders service use remain unspecified. The present study examines how service providers, community workers and residents recount their experience of the stigmatisation of local community identity and how this shapes residents' uptake of welfare, education and community support services. Twenty individual and group interviews with 10 residents, 16 community workers and six statutory service providers in economically disadvantaged communities in Limerick, Ireland, were thematically analysed. Analysis indicates that statutory service providers endorsed negative stereotypes of disadvantaged areas as separate and anti‐social. The awareness of this perceived division and the experience of ‘stigma consciousness’ was reported by residents and community workers to undermine trust, leading to under‐utilisation of community and government services. We argue that stigmatisation acts as a ‘social curse’ by undermining shared identity between service users and providers and so turning a potentially cooperative intragroup relationship into a fraught intergroup one. We suggest that tackling stigma in order to foster a sense of shared identity is important in creating positive and cooperative service interactions for both service users and providers. Copyright © 2014 John Wiley & Sons, Ltd.