Downward mobility – the phenomenon of children doing less well than their parents – will become a reality for young people today unless society makes dramatic changes, according to two of the UK’s leading experts on social policy.

The UK is among the worst of the developed countries for social mobility. It appears increasingly unlikely that people will be able to escape economic disadvantages linked to their background.

However, in a paper published by the London School of Economics’ Centre for Economic Performance (CEP), Lee Elliot Major and Stephen Machin warn that even the “dream of just doing better, let alone climbing the social ladder, is disappearing”.

Elliot Major is professor of social mobility at Exeter University and former chief executive of the Sutton Trust, a UK foundation improving social mobility, while Machin is a professor of economics at the LSE and director of the CEP.

Downward mobility is already in evidence in home ownership, according to research the pair have done for their book, What Do We Know and What Should We Do About Social Mobility?, which is due to be published in 2020.

The pair found that people aged 42 in 2012, with parents who did not own their own homes, were 15% less likely to own a home than those who were 42 in 2000. “Thus the generational divide in the housing market has worsened significantly as intergenerational home ownership mobility fell,” Elliot Major said.

According to their latest paper, published on Wednesday, the graduation gap between rich and poor nearly trebled between 1981 and 2013, with the graduation rate for those from the poorest families in 2013 (18%) yet to exceed the rate for those from the richest families in 1981 (20%).

Facebook Twitter Pinterest Students graduating in Britain in the 1980s. If from non-home owning families and in their 40s by 2000, they could be much more likely to own a home than people reaching that age a decade later. Photograph: Alamy

They also found an increasing pay premium linked to studying at private schools. In 1991, privately educated 33-34-year-olds were earning 25% more than their state-educated counterparts. In 2004 the pay premium had increased to 41%.

“Greater social mobility would mean less talent unfulfilled, more representative elites and a boost to the national economy,” said Machin. “For example, if levels in Britain were improved to those in Canada, it has been estimated that this would lead to an annual increase in the country’s GDP of around 4.4%. To put this figure into context, a 4% loss in GDP would be suffered in a major recession.”

The authors call for four big changes to address these challenges. “Small tinkering and minor tweaks of existing policies will not be enough to tackle Britain’s social mobility problem,” Machin said.

Among their suggestions are private schools working in genuine partnerships with state schools to earn tax relief, a national service for university students to tutor disadvantaged children, and improved pay for those who do valuable public service jobs.

The authors also call for progressive taxation; closing the tax loopholes that allow the wealthy to entrench their privilege, and increasing inheritance tax.

“Failure to do something will store up greater social and economic problems for future generations – our social mobility problem mirrors our environmental challenge in this respect,” said Machin. “But it is entirely possible to create a collective community-based culture, a fairer education system, a stronger economy and a more equal society, so that working together would boost social mobility and social justice once again.”

Angus Hanton, co-founder of the charity Intergenerational Foundation, said: “The solution is simple but politically unpalatable. We need to tax older, wealthier generations more and younger, working-age generations less. That means taxing assets over income, with housing and pensions key priorities.”

Caroline Abrahams, director at Age UK, said: “Changes such as expanded higher education and increases in home ownership enabled some of today’s older generation to ‘move up’ and there may well be a case for policies that better support and encourage social mobility among today’s younger people too.

“However, focusing on differences by age only tells part of the story, since inequalities in income and wealth within age groups are greater than those between the generations. Two million pensioners in the UK [16%] are living in relative poverty and a further million are just above the poverty threshold.”