Camila Batmanghelidjh, the founder of the south London charity, said there was recognition at government level that services were failing to manage children with extreme social and behavioural difficulties.
She said this was due to the shortage of secure units to provide them with residential care, as well as mistaken approaches taken in the sector.
She added: "The key error is that most people talk about giving young people choices and treating them like adults whereas what children really want is to be re-parented."
The money, from the Invest to Save Budget, supports programmes that deliver cross-departmental government objectives at a lower cost than the statutory sector can.
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