Young adults and people in work are now more likely than pensioners to be in poverty in Britain following a huge increase in insecure employment such as zero hours contracts, an influential study warns today.

The Joseph Rowntree Foundation (JRF) says as many people in working families as in unemployed ones now live in poverty, after a decade of labour market upheaval which means a job is no longer a guarantee of an end to poverty.

Its annual report says the rise of part-time work and low-paid self-employment has been accompanied by a sharp increase in the number of under-25s living below the breadline as they struggle to cope with falling incomes, poor prospects and high costs from housing to food.

A lack of affordable housing also means those living in poverty are now as likely to be in private, usually rented, accommodation – at higher risk of eviction and homelessness – as in local authority or social housing. Some 13 million people in the UK are classified as living in relative poverty – meaning their household income is below 60 per cent of the average.

By contrast, pensioners have benefited from targeted policies, seeing a sharp fall in poverty to a record low level: from once being the most likely to be poor, the over-65s now have the lowest poverty rate of any age group.

The JRF said its report showed British society, in particular in working practices, had gone through a radical change in the past decade and the “very worrying” rise in working-age poverty imperilled the nation’s economic prospects. Julia Unwin, the charity’s chief executive, said: “We are concerned that the economic recovery we face will still have so many people living in poverty. It is risk, waste and cost we cannot afford: we will never reach our full economic potential with so many people struggling to make ends meet.”

The study, conducted on behalf of the JRF by the New Policy Institute, found that while employment was close to a historic high, millions of Britons were struggling to cope with a reality of insecure work and incomes which have fallen on average by 9 per cent in the five years to 2013.

The prevalence of zero hours contracts – of which there are now some 1.4 million – and part-time work has contributed to a situation where two-thirds of people who moved from unemployment into work in the past year are being paid less than the living wage – the amount needed to cover basic costs of living.

Many are also effectively trapped in low-paid work, with only 20 per cent of employees having left that income bracket after a decade in employment. The average self-employed person now earns 13 per cent less than they did five years ago.

The study also found that claimants of jobseeker’s allowance are now more likely to be punished for not attending the Government’s welfare-to-work programme than to find employment through it.

Half of all people in poverty now live in a family with someone in paid work, with some 40 per cent of adults in employment now also in poverty.

Alison Garnham, the chief executive of the Child Poverty Action Group, said: “This comprehensive analysis paints a bleak picture. Families have long been told by politicians that work is the answer but are finding that it isn’t. As long as the only work they get is insecure and low paid, they will continue to face hardship and financial misery.”

The shift in demographic fortunes is particularly stark for 16- to 25-year-olds, where the poverty rate has risen from 25 per cent in 2003 to 31.5 per cent a decade later, driven by factors from a low minimum wage to high unemployment.

The figures for the over-80s reflect a welcome improvement in pensioner poverty, with a fall from 30 per cent in 2003 to 16 per cent in 2013.

The report found that without tackling core problems such as low pay and the high price of essentials, in particular housing, poverty would not diminish.

The failure of wages to keep pace with costs means the number of working people claiming housing benefit is rising while average hourly pay has fallen in five years from £13.90 to £12.90 for men and from £10.80 to £10.30 for women.

The reliance of many on private rented accommodation with insecure tenancies means that the number of landlord repossessions – 17,000 – is now higher than mortgage repossessions – 15,000.

The Government insisted that the overall picture was one of improvement. A spokesman said: “The truth is, the percentage of people in relative poverty is at its lowest level since the mid-1980s and the number of households where no one works is the lowest since records began.”

Case study: The graduate - ‘I spent four years at university and ended up as a cleaner’

Rebecca Field, 22, lives in Sheffield. She has left home but still relies on her parents to help her pay her rent.

I went to university in Sheffield and did an undergraduate degree in psychology. I applied for about 80 jobs but got nowhere. Clinical psychology is really competitive so I did a Master’s in clinical neurology.

I applied for 174 jobs and was really organised about it – I kept a spreadsheet with all the jobs and dates I’d sent the applications off. I got shortlisted for a few positions and some interviews but didn’t get a job.

I decided that if no one else would employ me I would set up my own business. I started Mopology, a cleaning firm, and also worked part-time for another cleaning company.

I managed to get a big contract and am nearly funding myself now, but I still rely on my parents to help pay my rent every month.

If I’m not self-sufficient by my 23rd birthday I’m going to have to move back home.

I can’t afford to drive so spend hours travelling to different houses on the bus with my vacuum cleaner. I can’t afford to go out and socialise more than once a month.

I never thought I’d go to university for four years and end up being a cleaner. If I’d have known that, I never would have gone. There is a real lack of jobs. It’s not just the graduates from this year competing for jobs, it’s the graduates from last year, too.