A damning public accounts committee report says that the government needs to "get to grips" with the issues "struggling" councils are facing in supporting increasing numbers of looked-after children.
It says that the children's social care sector is currently unsustainable, pointing out that 91 per cent of councils exceeded their children's services budgets in 2017/18, when the total overspend was £872m.
The government has a target by 2022 to improve the quality and cost-effectiveness of children's social care.
But the PAC report fears this will be missed unless the Department for Education better understands issues such as a variation of cost across England and the reasons why more children are entering care. Since 2010, the number of looked-after children has risen by 15 per cent.
"For the avoidance of doubt, we expect the department to improve both the quality and the cost-effectiveness of children's social care in measurable ways by its goal of 2022," states the report.
"This will require a step-change in the department's understanding of pressures, the reduction of unnecessary variation between areas in their social care activities and the costs of providing them, and greater pace in its work with struggling local authorities."
Another area of criticism levelled at the DfE is a failure to work closely with the Ministry for Housing, Communities and Local Government (MHCLG) on funding issues.
"The disconnect between the Department for Education making policy and the Ministry of Housing, Communities and Local Government allocating funding can only be a hindrance to improving services and needs resolving," says the report.
A fall in spending on early help for families is a chief concern of the committee.
"High quality, effective, early support for children is not only vital for them and their families, but beneficial for the taxpayer as well," adds the report.
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PAC chair Meg Hillier said: "Government's progress with reforming children's services has been painfully slow and it has still not made clear what sustainable improvements it hopes to achieve. Children, many of them in desperate circumstances, deserve better.
"The Department for Education regards children's social care as its most important responsibility. If it is to live up to that responsibility, it must first address what are persistent shortcomings in its understanding of the sector.
"The department still cannot explain the significant variation between local authorities in the activity and cost of children's social care, nor does it have an adequate understanding of demand pressures.
"It will need to rapidly acquire that understanding if it is to make a convincing case for funding to the Treasury. But beyond that, it must show leadership in government.
"Woolly ambitions are not enough to deliver lasting change. The department must drive cross-departmental work that will enable the government to properly meet the needs of vulnerable children."
The committee report details latest figures that show the amount spent by councils on each case of a child in need ranged from £566 to £5,166.
In addition, the rate of children in need cases ranged from 301 to 1,323 per 10,000 children across councils.
In 2017, the DfE, along with the MHCLG and Treasury, commissioned research to understand this variation. This is due to be completed this summer and will be considered by the government during its next spending review.
In January, the National Audit Office also criticised the government for failing to understand why demand for children's social care is rising.
A public accounts committee hearing last month heard from children's services directors, who detailed how a lack of supply of specialist children's home places is leading to bidding wars between councils and escalating prices.
Imran Hussain, Action for Children's director of policy and campaigns, said the PAC report paints "a bleak picture of children's services on their knees across the country, and the government's continued failure to grasp this very real crisis".
"Every day at Action for Children we see how children's services can be a lifeline for families and play a critical role in stepping in early to keep vulnerable children safe from neglect, abuse and harm," he added.
"Yet faced with crippling funding cuts, cash-strapped councils are struggling to keep open early help services and are being forced to spend more of their shrinking budgets on crisis services, which means thousands of vulnerable children and families are left to fend for themselves as problems spiral out of control."
Children's minister Nadhim Zahawi said: "Together with local authorities and dedicated social workers, this government is driving up standards in children's social care. The number of children's services rated 'outstanding' is rising and the number rated as 'inadequate' has fallen by a third since 2017.
"We know there are financial pressures in the system and in the last year we have given local authorities an extra £410 million for adult and children's social care.
"We will continue to work with sector better understand what is driving demand and how we can work together to respond to those challenges."
Stuart Gallimore, president of the Association of Directors of Children's Services, said: "Some variation in levels of demand, activity and spend between local authorities is to be expected and this is driven by factors largely out of our control but central government can, and must, make a difference by tackling the wider social determinants that fuel demand, such as deprivation and the prevalence of domestic abuse, parental substance misuse and poor mental health. A child poverty reduction strategy would be a good place to start.
"The issue of variability should not be used to suggest there is scope for more efficiencies because there is not. Even high performing, well-run, low-spending councils, like my own, simply have nowhere left to go. Collectively, children's services overspent by more than £800 million in the last financial year and face a funding gap of £3 billion by 2025, just to stand still.
"It is crucial that a compelling case is made for our services to be properly resourced ahead of the Spending Review and we would be happy to work with the DfE on this on behalf of children. Children's services urgently need to be put on a sustainable financial footing, or I worry about the nature and type of services we will be able to provide to vulnerable children and their families."