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It is estimated one in five children and adolescents suffer from a mental health problem, but the commission says services "remain underdeveloped" in many areas and the number of staff varies widely.
The report notes improvements have been made in the past 20 years, with increasing recognition of the problem and more government funding.
England and Wales spends £150m a year on children's mental health.
The report, Children in Mind, is the first time the commission has analysed extensive data from health authorities and trusts about specialist mental health services for children in England and Wales.
It found there was often poor liaison between specialist services and other agencies, including primary care services.
Access to services was sometimes restricted, said the report. Ten per cent of trusts could not offer an appointment for non-urgent cases within six months.
Two trusts had a average waiting time of over two years.
Twenty-nine per cent of health authorities had limited services for children under 16 and over a third of specialist Child and Adolescent Mental Health Services had inadequate 24-hour cover.
Complex needs
The report found boys were more likely to need specialist services than girls, although from mid-teens on girls outnumbered boys.
Many children who do need help have a range of different problems and four in five have identifiable risk factors.
The commission says children brought up by single parents, those with unemployed parents and those whose parents have a mental illness are at greater risk of developing their own mental health problem.
Those untreated could be excluded from school and face problems of low self-esteem, leaving them socially excluded as adults.
The report says health authorities often do not have good information on how much they spend on children's mental health and on age limits for treatment.
It calls for better liaison between different agencies and more support offered to those working on the ground, including teachers and GPs.
It also wants better procedures for reviewing services and assessing local needs and more attention on "adequacy of resources".
Andrew Foster, controller of the commission, said: "Public services must not fail vulnerable children and young adults.
"Mental health services can make a major contribution to the support of young people and staff are clearly working hard.
"But our report shows that the design and delivery of these services may not be keeping pace with a rapidly changing agenda."
Extra cash
The government has announced an additional £84m for children's mental health services over the next three years.
Last week it detailed how the money would be spent in 1998/99.
It will go on innovative projects and those that meet national objectives such as reducing suicide.
Mental health workers have welcomed the extra cash, but say it is not enough and the government is tending to concentrate on the most severely mentally ill.
The Mental Health Foundation, which recently published a big report on children's mental health, says more resources need to be put into preventative care and promoting good mental health.