The Commission for Social Care Inspection said the cost of services for looked-after children in England increased by an average of 10 per cent in the past year. Even allowing for inflation, the real-terms increase was five per cent.
This compares to a real-terms increase of 15 per cent between 2001/02 and 2002/03.
And on this aspect of performance, only a quarter of councils were ranked in the top band by the commission.
David Hawker, director of children's services in Brighton and co-chair of the Association of Directors of Education and Children's Services, said: "A lot of people are struggling with the underfunding of services."
He called on the Government to take a "long hard look" at what the real costs of running children's services were.
In the past, councils had often found extra money by spending less on adult social services, he said. However, with the split of adult and children's services, that option was no longer available.
Denise Platt, chairwoman of the Commission for Social Care Inspection, recognised that councils were faced with an increase in the number of looked-after children with complex needs, but warned them against hiding behind this.
When commissioning children's services, councils must ask whether their commissioning was "clumsy" and whether they were paying more than necessary, she said.
The figures also revealed an 11 per cent rise in the past year in the average weekly expenditure for children's residential care. The cost of foster care per week rose by 14 per cent.
BAAF Adoption and Fostering said it was working with the Fostering Network to establish what it cost to run an effective fostering service that met the needs of children.
In October, senior social care figures called for the financial assumptions underpinning children's services to be made clear. (Children Now, 13-19 October) They cited the rising costs of caring for looked-after children as a key reason for major social services budget deficits.
