The government faces an uphill struggle if it is to fully harness the potential of the internet, an independent report has warned.

The National Audit Office said that although the UK made a strong start in putting government information online in the mid-1990s, it has since lagged behind other countries such as the US.

The situation was so bad that many government sites were now "disconnected and relatively hard to navigate," it added.

And it warned that Whitehall was missing out on making huge cost savings by ignoring the opportunities to enable the public to get information, download forms and pay bills online.

Internet access in the UK has grown by more than 25% in the past year - more than 10m people can now get online either at work or home.

The Department of Social Security could save an estimated £7.7m annually if it managed to shift 2% of the 160 million phone calls it gets each year to its website.

Prime Minister Tony Blair promised in 1997 that 25% of government business would be handled electronically by 2002.

But the NAO report revealed that many departments had interpreted this directive too loosely, and have included telephone call centres under "electronic" services.

In Australia, 75% of tax returns are already filed electronically.

The report's author, Professor Patrick Dunleavy of the London School of Economics, said: "The civil service and the government have glimpsed only a tiny fraction of the potential of using the internet.

"It's a question of changing the culture in government organisations, and it will be quite an uphill struggle."

Professor Dunleavy picked out the Meteorological Office and the BBC as among the best publicly-funded websites.

But his report had harsh words for the government's "gateway" site, www.open.gov.uk, saying it should be re-launched with a "more accessible name and with a different brand identity".

Asked to nominate particularly bad sites, he pointed to the Benefits Agency.

"I cannot really comment about this one," he said.

"I'll just point it out and leave it up to you to make up your own minds."

The report comes only a week after new Cabinet Office rules were announced to encourage better web design by Whitehall webmasters.

Ministers have promised to transform the way the state provides information on the internet to make sure both the blind and socially excluded can also access it.

The government's newly-appointed "e-envoy", Alex Allan, is also to formally start work in January.

The NAO report - the first to be contracted out wholesale by the office, and the first to be published in its entirety on the web - made a series of recommendations to boost the government's web service:

• All sites should be regularly reviewed and updated.
• They should all provide clear instructions for communicating with the agency concerned, including an e-mail contact.
• Staff in government departments should know what their own website looks like, and what is available there. Until recently, only a dozen of the Benefit Agency's 75,000 staff were able to see their web site from the computers on their desks.
• The Cabinet Office should compile regular surveys of how government websites are used, and by how many people.
• More forms and information should be made available online.