Some of the functions of the Child Support Agency (CSA) are expected to be handed over to the private sector under sweeping reforms to the troubled body.
Tony Blair declared yesterday that the agency was "not properly suited to carry out" its task of ensuring parents fulfil obligations to their children. He told the Commons it was in "an extremely difficult position" as the investigating, adjudicating and enforcement agency.
"We are looking urgently at what the solutions may be. But I have to say I think the problem is a fundamental one, which is the nature of the task that they are called upon to perform," he said.
His remarks provoked speculation that the CSA would be abolished. But later Downing Street said the Prime Minister was merely "posing questions".
A review by the CSA's new chief executive, Stephen Geraghty, due to report in January, is expected to reject this "nuclear option" of abolition and rule out handing over its work to HM Revenue and Customs. He may conclude that reform would provide better value.
Under the changes, the Government may use private debt collectors to recover money from absent parents in "worst cases" and transfer some frontline and telephone work to outside companies. Debts owed in thousands of cases may be written off, leaving the taxpayer to pick up the bill.
Set up by the Tories in 1993, the CSA has been dogged by controversy, with computer failures causing severe payment delays. A new child maintenance system introduced in 2003 failed to solve the problems.
Mr Blair's hint of radical reform came after he was challenged by Charles Kennedy, the Liberal Democrat leader, who recalled that the Prime Minister had said as long ago as 1998 that the CSA was "a mess" and had lost the public's confidence.
"For every pound that is spent on his own bureaucracy, only £1.85 gets through to the children that it's supposed to be there to help. How on earth can he defend such an appalling track record as that?" he asked.
David Laws, the Liberal Democrats' spokesman on work and pensions, said the Government's policy was "chaotic and confused". He disclosed figures showing that more than 35,000 claimants had won compensation payouts from the CSA in the past four years after mishandling their payments, which are estimated to have cost £3.5m.
As he prepared for a cabinet discussion today on his public sector reforms, Mr Blair was mocked by the Tory leader Michael Howard at Prime Minister's Questions for delaying a Green Paper on welfare and arguing with Labour MPs over his education policies.
He told Mr Blair: "You and I are both on our way out. You don't have much time left. You shouldn't waste it abusing those who agree with you on this issue." Mr Blair replied: "Let me give you some advice. When you win an election - then give some advice to someone who's won three!"
Kate Green, chief executive of the Child Poverty Action Group, said: "The hundreds of thousands of parents and children who are let down by the system, and all too often go without, cannot wait any longer."Reuse content