Children's homes will be stopped from making "excessive profits" in an overhaul of the care system, the Government has announced.

New powers will be given to the watchdog Ofsted to crack down on private social care providers delivering "sub-par standards of care at sky-high costs to councils".

The measures set to be introduced to Parliament will also force firms providing care for children to set out their finances in a bid to increase transparency across the sector, the Department for Education (DfE) said.

It comes as a report by the children's commissioner published on Monday found that vulnerable children were made to live in caravans and Airbnbs, with many being placed in "highly unsuitable" accommodation.

The proposals are aimed at empowering social workers and others who work with children to take action against providers, the department said.

It said a long-standing challenge is some private providers "syphoning off money that should be going towards vulnerable children, making excessive profits or running unregistered homes that don't meet the right standards of care".

Spending by local authorities on looked-after children has more than doubled in just over a decade, from £3.1 billion in 2009-10 to £7 billion in 2022-23, the DfE said.

The biggest 15 private providers make an average of 23 per cent profit, according to analysis by the Local Government Association, which said there are more than 1,500 children in placements each costing the equivalent of half a million pounds every year.

The Government said it would also introduce a "backstop" law that will limit the profit that companies can make if providers do not voluntarily put an end to profiteering.

Bridget Phillipson, the Education Secretary, said the system had "suffered from years of drift and neglect".

"It's bankrupting councils, letting families down and, above all, leaving too many children feeling forgotten, powerless and invisible," she said.

"We will crack down on care providers making excessive profit, tackle unregistered and unsafe provision and ensure earlier intervention to keep families together and help children to thrive."

Ofsted will also be given powers to investigate multiple homes being run by the same company, in response to recommendations made following abuse uncovered at the Hesley Group of children's homes.

The Child Safeguarding Practice Review Panel last year called for a more joined-up approach to the care of disabled children in care homes following its report into homes run by the Hesley Group.

Its review had focused on three residential settings - Fullerton House, Wilsic Hall and Wheatley House - registered as children's homes and operated by the Hesley Group in Doncaster, between January 2018 and March 2021.

Looking at the experiences of 108 children and young adults, it found that some of society's most vulnerable people had experienced "systematic and sustained" abuse and neglect over a period of more than three years.

Dame Rachel de Souza, the children's commissioner, said youngsters were "paying the price of a broken social care system" and "enduring things no child should ever have to".

She said the measures outlined in the Bill were an "opportunity to repair how we treat childhood in this country".

A separate report by Dame Rachel found some children's basic rights to safety and happiness were "too often being ignored in a system that puts profit-making above protection and allows decisions to be dictated by local resources".

It reveals an autistic teenager was placed in an Airbnb by her local authority under supervision for nine months following pressure to discharge her from hospital as she did not meet the criteria to be held under the Mental Health Act.

It also noted an example of a teenage girl who had suffered parental domestic violence and neglect and who, after experience in foster care and a children's home, was given a supervised crisis placement in a caravan.

She was later housed in a children's home 120 miles from her grandparents.

Dame Rachel said: "The vast majority of children subject to deprivation of liberty orders are in the care system.

"Some are living in specialist therapeutic children's homes or settings that have been created specifically for them.

"However, many children live with these restrictions in places that are highly unsuitable, including illegal children's homes, Airbnbs or on hospital wards while awaiting discharge."

Her report recommended that "far fewer" children should be subject to deprivation of liberty orders, and for those who are, they should never be placed in an illegal children's home.

The commissioner called for a strengthening of the law in this area to give clarity and transparency on decision-making; for children to have a stronger voice in the process; and oversight from a judge to ensure local authority decisions are reviewed every three months.