The Prime Minister told MPs yesterday that it was extremely difficult for one agency to assess claims, arbitrate in disputes and collect the cash, suggesting that at least one of these functions would be hived off to another organisation.

His remarks came as a surprise to Department for Work and Pensions ministers who, earlier in the day, defended the CSA and said that it could be reformed gradually.

But Mr Blair said that there were fundamental problems at the agency and the changes would be radical. “The previous Government established the Child Support Agency to make sure that parents carried out their obligations to their children,” he told MPs.

“The truth is the agency itself is not properly suited to carry out that task. We are looking urgently at what the solutions may be to it but the problem is a fundamental one, which is the nature of the task that they are called upon to perform.

“The Child Support Agency is in an extremely difficult position. It is the investigating agency, it is the adjudicating agency, it is then the enforcement agency.”

The CSA, which costs £330 million a year to run, has been plagued with problems since it was set up ten years ago. More than one million calls to its helpline went unanswered last year and £1.7 billion in payments from estranged fathers are overdue.

Figures released yesterday indicated that the agency collected £1.85 for every £1 spend on administration. Its future has been the subject of a root-and-branch review by Stephen Geraghty, the new chief executive, who was previously at the insurer Direct Line.

Whitehall sources said that the Prime Minister’s comments to MPs reflected the strong language contained in the review. They said that there was “genuinely a question mark over whether one agency could carry out all the different functions” of the CSA.

John Hutton, the new Work and Pensions Secretary, is considering Mr Geraghty’s proposals and hopes to announce plans to overhaul the agency before the end of the year. Later the Prime Minister’s spokesman attempted to play down the significance of Mr Blair’s remarks. The real problems at the CSA had to be weighed against improvements over the past year. More than £600 million in maintenance payments were collected.

Opposition parties accused the Government of sending confusing signals to thousands of lone parents desperately waiting for payments. David Laws, the work and spensions spokesman for the Liberal Democrats, said: “The Government’s line is chaotic and confused. Lord Hunt said that the CSA could be reformed through a gradual process. Now the Prime Minister’s comments imply that he realises there is no other way forward than to scrap the CSA. Parents who view the CSA with nothing but contempt or despair need to know that its days are numbered and that its functions will be transferred to the Revenue so that it better serves those who are trying to pay their maintenance and properly pursues those who aren’t.”

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