Children in care are suffering significantly higher rates of mental health problems than their peers and are far more likely to smoke, drink and abuse drugs, a damning new report has revealed.

They are also five times more likely to be admitted to hospital than children living with their own families and are at greater risk of dropping out of school.

The figures, to be released by Anglicare Victoria this week, paint a bleak future for children in Victoria's residential care system, who are lagging well behind on a range of developmental, educational and social milestones.

Forty-one per cent show high levels of emotional and behavioural difficulties compared to 18 per cent in the broader community.

Only 15 per cent of the 353 children surveyed have contact with their siblings and just 31 per cent have regular contact with friends, compared to 54 per cent in the broader community.