Schools should no longer face a legal requirement to provide daily acts of worship of a Christian character, under radical reforms being proposed by a top-level inquiry into the place of faith in multicultural Britain.

The Commission on Religion and Belief in British Public Life, led by former high court judge Elizabeth Butler-Sloss, also recommends curtailing the segregation of children by faith and a radical overhaul of the teaching of belief to make it more realistic and relevant in a diverse and increasingly secular country.

The weighty report is expected to set out proposals on the place of faith in the next coronation, as well as examining religion in relation to education, the criminal justice system, the media, social provision and politics. The commission’s patrons include the former archbishop of Canterbury, Rowan Williams, and its members are drawn from all major religions in the UK.

Among its proposals is the repeal of a legal requirement for most state schools to hold daily acts of collective worship that are wholly or mainly of a Christian character. Non-Christian faith schools are permitted to choose their own form of worship. “The arguments in favour of retaining compulsory Christian worship in UK schools are no longer … convincing,” the report says, according to draft seen by the Observer. Instead the commission endorses an inclusive “time for reflection”, embracing children of all and no faiths.

In place of the current legal requirement, the report urges the government to issue new guidelines that would build on “current best practice for inclusive assemblies and times for reflection that draw upon a range of sources, that are appropriate for pupils and staff of all religions and beliefs, and that will contribute to their spiritual, moral, social and cultural development”.

The report’s conclusion on religious assemblies adds to a growing clamour for reform. Most schools ignore the law governing collective Christian worship, with two-thirds of parents telling a 2011 ComRes survey that their children did not attend religious assemblies. Six out of 10 people said the law should not be enforced.

Former education secretary Charles Clarke this year urged the abolition of compulsory daily worship, saying “the decision about the form and character of school assemblies should be left to the governors of individual schools”. Last year John Pritchard, bishop of Oxford, said collective worship should be replaced with “spiritual reflection”.

The report also points to “negative practical consequences of selection by religion” in faith schools. One-third of schools in England are publicly funded faith schools, the vast majority of which are Christian. In Northern Ireland, more than 90% of children attend schools that are either Protestant or Catholic.

“It is in our view not clear that segregation of young people into faith schools has promoted greater cohesion or that it has not been socially divisive, leading to greater misunderstanding and tension,” the report says. “Selection by religion segregates children not only according to different religious heritage but also, frequently and in effect, by ethnicity and socio-economic background. This undermines equality of opportunity and incentivises parents to be insincere about their religious affiliation and practice.”

Bodies responsible for admissions policies should reduce selection on grounds of religion in state-funded schools, it concludes. Faith schools are also exempt from some aspects of employment law, to allow religion to be a criterion for recruiting teachers – a practice the commission says UK authorities must monitor for possible abuse.

A massive recruitment and retraining programme for teachers of religion and belief is needed, says the report. The subject should be treated “seriously and deeply in these unprecedented times of religious confusion and tension”.

The content of syllabuses on religion and belief does not reflect reality and is overly sanitised, it says. “They tend to portray religions only in a good light, focusing on the role of religions in encouraging peace, harmony and caring for the poor and the environment, and omitting the role of religions in reinforcing stereotypes and prejudice around issues such as gender, sexuality, ethnicity and race, and the attempts to use religion as a justification for terrorism.”

Syllabuses should reflect the diversity of religion and belief in the UK, and include non-religious worldviews, such as humanism, the report says.

Last month the high court ruled in favour of three families and the British Humanist Association, who had challenged the exclusion of non-religious worldviews in the syllabus of the government’s new religious studies GCSE. The content of the course had to be pluralistic, the court said. The commission points out that state schools in the UK are subject to four jurisdictions, each with its own statutory requirements regarding religion and belief.

Established by the Woolf Institute, which studies relations between Christians, Muslims and Jews, the commission’s patrons include Williams, Iqbal Sacranie, former general secretary of the Muslim Council of Britain, and Lord Woolf, the former chief justice. Members were drawn from all major faiths in the UK, academia, the Equality and Human Rights Commission and the British Humanist Association.

Public consultations over the course of two years were held by the commission as part of its research. As well as open hearings in London, Birmingham, Belfast, Cardiff, Glasgow, Leeds and Leicester, the public was invited to submit opinions and contributions by post and email.