Appearing before the education select committee, which has previously recommended that the age for leaving residential care be raised to 21, Sir Martin Narey told MPs that such a move would cost a "huge sum of money" and he is keen to find "pragmatic and affordable" ways of improving the system.
Questioned by the chair of the committee, Conservative MP Neil Carmichael, on recommendations made in various previous reports on children's residential care that are yet to be acted on, Narey said there are "some good ideas" which are "difficult to translate into practice because of affordability issues".
He said he has met children while visiting children's homes who would clearly benefit from remaining in their placement for longer, but cited cost as a barrier.
"If only 25 per cent of children in children's homes opt to stay put the cost to the government would be about £144m over three years – that's a huge sum of money," he said.
"If the proportion is 100 per cent it is more than half a billion pounds.
"I have done reports for the government before and I have always tried very hard to recommend things that are financially feasible. I don't want to make recommendations that will be accepted in spirit and not be taken forward.
"I want to find a way of doing things that can be delivered against the backdrop of the considerable spending limitations there would be on this government or any government and, of course, there are limitations on local authorities."
Narey suggested that he will recommend less fundamental reform of the system.
"I don't think there's a golden bullet here," he said.
"I don't think there is something that can be suddenly transformative. I hope there will be an accumulation of smaller things that will make a difference, and build on some real progress [in recent years]."
Narey's comments come despite growing calls for the age young people can leave care to be raised to 21 – replicating a change in law that came into effect in 2014 allowing young people to remain in foster care until the age of 21 – so-called Staying Put arrangements.
In January last year a scoping study ordered by the Department for Education, put together by the National Children's Bureau (NCB), the Who Cares? Trust, Barnardo's, Action for Children, Together Trust and Loughborough University, called for government to introduce a new system of wide-ranging support up to the age of 21 – estimating the cost to be around £76m a year.
Leaders of local authorities children's services are also behind the idea – with Alison O'Sullivan, president of the Association of Directors of Children's Services stating last year that agencies should be "seeking to do the best we can for the neediest children in our care".
Narey, who said he expects to report his recommendations to the government by May, also told MPs that children's homes often get a "bad press".
"I think staff that work in children's homes deserve a bit more recognition than they get from politicians and the media about the very, very difficult difficult job they do."
He added that expectations on residential care can sometimes be too high.
"The average age of entry for residential care is about 14 and the average length of stay is about eight months," he said.
"It is hardly likely to change their lives, which have been very, very chaotic.
"I think if we were having children in residential care for many years and the outcomes were still quite so poor we might be able to draw that conclusion [that it is not working], but the evidence seems to be that the handful of children that do go into residential care and stay there for longer periods of time have better outcomes than other children."
Narey's review of residential care was announced by Prime Minister David Cameron in October.
There are currently more than 8,320 children and young people in children’s homes throughout England, making up around 12 per cent of the total number of children in care, with councils spending more than £1bn a year on provision.