The Child Support Agency, £3 billion in debt and lambasted as the worst body of its sort in the developed world, will be redesigned from scratch, the Government said today.

In a statement to the House of Commons, John Hutton, the Work and Pensions Secretary, admitted that the agency had failed, but declined to say what form a new system would take.

Instead, the Government will carry out a second review of the future of the CSA in two years, a move which attracted criticism from opposition MPs and welfare groups.

In the meantime, Mr Hutton said that the agency would have new powers and would hire private debt collectors to pursue maintenance payments from absent parents.

Sir David Henshaw, the former chief executive of Liverpool City Council and an adviser to No 10, has been asked to carry out the review. In recent months, the Government has been urged to dissolve the CSA entirely and transfer its responsibilities to HM Revenue and Customs.

"I have concluded that neither the agency nor the policy is fit for the purpose," Mr Hutton said today. "There is little evidence to suggest that outcomes are any better than under the court system it replaced."

He said he had asked Sir David "to completely redesign our system of child support" and warned MPs that there was no immediate prospect of a solution.

"We should be suspicious of simple solutions. There are none. Walking away is not the answer," said Mr Hutton. "Over 500,000 children are currently benefiting from maintenance payment collected through the CSA. We must ensure this continues."

"But it is time for fundamental change," he added. "Relationships, as we all know, come to an end. Responsibilities do not. This fundamental truth must underpin any new arrangements."

Mr Hutton promised that the new system would have real power to force absent parents, normally fathers, to pay. Banging his fist on the despatch box and he said irresponsible parents would be "hearing the knock on the door from the bailiffs".

Mr Hutton's statement today coincided with the publication of an "operational improvement plan" for the CSA. According to the plan, the agency will employ more staff, allow absent parents to pay maintenance grants with credit cards and contract out debt collection to private agencies.

After 12 years of backlogs and a costly failure to implement a new computerised system, Mr Hutton said the CSA had managed to collect £4.5 billion in support payments, but had cost £3 billion to run and was staggering under the weight of £3 billion in debt.

The agency currently has a backlog of more than 300,000 cases and misses its target of 42 days to process a case by more than a year. For every £1 collected from absent parents, the CSA spends £1.85.

David Laws, the Liberal Democrats Work and Pensions Spokesman, said the CSA was "the worst-performing child support agency in the developed world" and that the announcement of yet another review would frustrate single parents waiting for payments.

"There is real anger in the country at the failures of the CSA and the Government’s continuing inability to settle on a clear solution," he said. "It is absurd for the Government to have to establish yet another review about the future of the CSA, over a year after a previous review was established."

"Desperate families may now have to wait for two or three years more before the CSA is finally replaced."

David Hammond, the Conservative Work and Pensions spokesman, said that there had been "a failure of political leadership" at the CSA for many years and he accused the Government of "fiddling around" as problems at the agency mounted.

"The new computerised system which the Government introduced under the 1999 Child Support Act was two years late in getting started and has never worked properly. Now, you have written it off," he said.

"The action you announced today to address the crisis in the child support system is certainly too late. Let us all work together to ensure that it does not turn out to be too little."

Duncan Fisher, chief executive of the charity, Fathers Direct, said fundamental reform would allow the Government to look at foreign examples of successful child support policies.

"We urge the Government to learn the lessons of good practice in Australia," he said. "A reformed system of child support must be part of a broader approach to supporting separating families."

"It should understand better the often complex reasons - frequently based in poverty and relationship breakdown - why non-payment and lack of care occurs."

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