Local authorities need more support to help them find suitable placements for children in foster care and children's homes, a new report has said.

A year-long study into children's social care by the Competition and Markets Authority (CMA) found a shortage of appropriate places in children's homes and with foster carers, which means some children are not getting the right care.

The CMA found some children were also being placed too far away from where they previously lived or in placements that require them to be separated from their siblings.

Its study warned that the shortage of suitable placements was leading to local authorities – and therefore the taxpayer – paying particularly high prices.

The high cost of finding suitable placements is the result of shortages, but the CMA also warned that it was because of the fragmented system by which services are commissioned, which means that councils are not able to leverage their role as the purchasers of placements or to plan properly for the future.

To address these issues, the CMA called on the UK, Scottish and Welsh Governments to create or develop national and regional organisations that could support local authorities with their responsibilities.

The CMA said these would improve commissioning through the publication of national and regional analysis and providing councils with support to meet more placement needs in their area.

CMA chief executive Andrea Coscelli said: ‘The UK has sleepwalked into a dysfunctional children's social care market.

'This has left local authorities hamstrung in their efforts to find suitable and affordable placements in children's homes or foster care.

‘Local authorities cannot be left to face these challenges alone.

'There are several areas where national Governments should make changes to address issues in the sector, including new financial oversight of providers and the development of new bodies to support local authorities with commissioning.'

But president of the Association of Directors of Children's Services, Charlotte Ramsden, said: ‘We are disappointed that the CMA did not go further on limiting for-profit provision or placing a limit on prices or profits. Profiteering through public money on the basis of meeting children's needs is unacceptable.'