It has accepted sweeping recommendations by the former chief inspector of social services, Sir William Utting, in a 200-page report on the safety of "children living away from home" - including children with special needs in boarding schools.
Recommendations include tighter regulation of children's homes - including those with fewer than four residents which currently escape the 1989 Children Act - and legislation to regulate private foster care where children were "extremely vulnerable" and isolated. Sir William also said state residential special schools should be subject to the Children Act and called for their "elevation I to the level of the best". They should be inspected regularly. Disabled children in care were particularly vulnerable.
Health Secretary Frank Dobson said Sir William had revealed "the failures of a whole system". Elementary safeguards had either not been put in place or were not enforced.
The report, which Sir William spent a year drafting, recommends a fundamental review of Government policy in the face of appalling levels of abuse.
Sir William said runaway children were often returned to their abusers and young people who alleged abuse were not believed. Staff who suspected abuse kept quiet fearing victimisation. Bullying appeared to be ignored. Children in care were moved too often and placement policies were poor.
Yet he called for an expansion of residential and foster homes - albeit with new safeguards - saying cuts in the service had left local authorities with too few options. Some 8,000 children now live in homes compared to 40,000 in 1975.
The report, People Like Us, also criticised the education children in care receive - a finding echoed in a new in-depth study of life in 12 children's homes issued today by researchers at the University of Luton .
"We need vigorous rehabilitation of residential care; clear and consistent rules; modernisation of foster care; and the elevation of boarding schools to the level of the best," Sir William said. "The Government, local authority managers and staff must be continually vigilant against abuse."
Such official recognition was broadly welcomed by children's groups who said Sir William's report echoed many of the claims they had made and urged action they had taken.
The inquiry was ordered by the previous prime minister John Major in response to widespread concern about the safety of children in care. At the same time an inquiry into abuse in North Wales homes was set up: that is due to report next year.
Sir William said that in the past children had not been listened to - a concern highlighted by social workers and former residents of children's homes at a conference this week organised by childcare development charity The Bridge.
John Fitzgerald, its chief executive, said: "One of the things that worries me most about the way we deal with young people in our system is that they have things to say but rarely are they actually heard.
"Time and again through the court system they will be discredited and not believed. Fifty per cent of police forces are investigating abuse in residential care. Most of the young people at the centre of these inquiries will have said a great deal yet their words will almost certainly have been lost over time."
The meeting also heard from one of the witnesses in the North Wales inquiry, who had spent three days giving evidence. He said: "There are dead ex-care kids that never got the chance to explain why they were the way they were. I was brought up in care and got no education. I was the product of a factory. I was left with no social skills, no self-esteem."
Sir William started a busy week on Monday by formally launching the new Forum on Children and Violence, which he chairs.
The forum urges government action to address the culture of violence, arguing children are the key to change. It wants a public awareness campaign to underline that violence is unacceptable, coupled with education for children on solving conflict without violence.
Luton report, page 10