Care in Oxfordshire is facing severe cutbacks after the county council's social services department revealed it had overspent its budget by £5.4m.

The move means some children now in care will be returned to their families and the authority will restrict future foster placements.

Elderly and disabled people needing care will be added to waiting lists, and the criteria for assessing their needs will be tightened. Those already receiving care will be reassessed.

Despite the crisis, the department has been praised by Government inspectors for its performance in the face of a "significantly difficult budgetary situation".

At yesterday's social services committee, the department's director, Mary Robertson, announced cutbacks aiming to save £3.4m - including £2m by the end of the financial year in April.

She said: "I am deeply concerned yet again for vulnerable people in Oxfordshire, who are not getting the services they deserve because of the inadequate funding for social services in this county.

"I think the current proposals to reduce expenditure will cause great hardship."

Ms Robertson said the cost of residential and nursing home care, which has increased by 20 per cent, had contributed to the problem.

The department had also under estimated the numbers who would need care at home - budgeting for 1,000 when the number had risen to 1,400.

The discrepancy was blamed on an out-dated computer system.

Escalating advertising costs to fill job vacancies was also named as a key factor in the overspend.

The cutbacks include restricting nursing care, residential care and community care packages for the elderly and people with physical and learning disabilities.

A shortage of foster parents has meant the department has had to use privately-run agencies, which attract foster carers with more money and charge the authority for arranging placements. Social services will reduce the number of children cared for by agencies, including charity-run homes.

The department plans to return up to half of the 34 children in agency placements, to their families, foster parents or residential homes, saving £1.1m. No more children will be placed in agency care or with independent fostering agencies until the target has been met.

Ms Robertson denied claims that children's homes were under threat.

The department will also stop paying for children in care to travel to school in the area they have moved away from and parents' travel costs to visit children in care. Children's travel costs to meet with parents will still be met.