Social Mobility and Child Poverty Commission report predicts number of households in absolute poverty will rise by one third this decade

Britain is on the brink of becoming a nation permanently divided between rich and poor, according to the Social Mobility and Child Poverty Commission in its second annual state of the nation report.

The 335-page document is likely to be a reference point against which the government’s anti-poverty record will be judged, and to feature strongly in opposition party manifestos for the 2015 general election.

The report says all three main Westminster political parties are lamentably failing to be frank with the electorate about the fact there is no chance of meeting the government’s statutory child poverty target by 2020.

It also predicts that 2010-2020 will be the first decade since records began that saw a rise in absolute poverty – defined as a household in which income is below 60% of median earnings. A rise from 2.6 million households in absolute poverty to 3.5 million is now expected.

The chair of the commission, the former Labour cabinet minister Alan Milburn, said: “Muddling through will not do when the mismatch between needs and anti-poverty government policies are widening.”

Asked whether the government had responded to his first report, he said: “It is like water from the stone. Our plea is not just to the current parties of government … They are great at talking the talk, the issue is whether they can walk the walk. The policies lack the scale to move the dial.”

Milburn attacked the government for failing to agree a child poverty strategy due to a coalition row. “You cannot have a situation where government ministers first discredit a target and then fail to agree a new target and then go back to a discredited old target,” he said. “That is beyond a Whitehall farce.”

The government’s social mobility tsar Alan Milburn. Photograph: PA

The report warns that “2020 could mark a watershed between an era in which for decades there have been rising living standards shared by all and a future era where rising living standards bypass the poorest in society.”

It suggests that the link between effort and reward, on which social mobility relies, has been broken by changes in the housing market – with home ownership rates halving among young people in 20 years – and the labour market – with 5 million workers trapped in low pay.

When combined with cuts in welfare and public spending, these changes put Britain on track to become a permanently divided nation.

The report calls on the next government to supplement the existing targets with new measures to give a more rounded picture of poverty and to amend the legislation to set out a new timescale for achieving them.

The commission made six major recommendations:

• The UK should commit to implementing a living wage by 2025 at the latest.

• The Office of Budget Responsibility should publish an assessment of each Budget for its impact on social mobility and child poverty.

• Half of all workplaces with more than 10 staff should offer quality apprenticeships.

• New forms of housing tenure through expanded shared ownership schemes and reform of the private rented sector.

• The best teachers should be paid more to teach in the worst schools to help end illiteracy and innumeracy in primary schools by 2025 and halve the attainment gap in secondary school by 2025. It suggests teachers should get a 25% pay rise to work in the most challenging schools.

• Unpaid internships to be made illegal and 5,000 more pupils from a free school meals background to be going to university by 2020. It proposes that the extra 100,000 university places by 2020 give universities a unique chance to find the extra 5,000 places, with the Russell group admitting 3,000 more places for state schools, using textual admission processes.

Milburn said internships had become a new rung on the professional ladder and were being abused by the middle classes and people from private educational backgrounds.

The report highlights that child poverty, set against the 2010 Child Poverty Act, was at a historic low in 2012-13.

But it adds: “The bad news is that real wages are still falling while jobs are becoming less secure. Housing costs are straining the link between effort and reward that should be at the heart of a fair and socially mobile country and different parts of society are having different experiences of the recovery with big variations by income age family type and region.”

It also finds “a higher proportion of jobs are insecure and low paid and 5 million people earn less than the living wage”.

Milburn also challenged Labour’s promise to commit to a minimum wage of £8 an hour by 2020, saying the number was less ambitious than what has been achieved in the current parliament. Labour said its policy was to raise the minimum wage to 58% of average earnings – higher than the current average.

The report also warns that money will not be available in the next parliament to drive an anti-poverty fight. Milburn said: “The impact of welfare cuts and entrenched low pay and welfare cuts will bite between now and 2020. The pace of fiscal consolidation has been slower than anticipated, meaning over 40% has been deferred to the next parliament.

“Each of the main parties are committed to eye-wateringly tight spending cuts. None of them have made much effort to reconcile the social ends they say they want with the fiscal means to which they are committed.

“In particular plans, to cut in-work support in real terms in the next parliament can only make the working poor worse off, not better off.”

The report adds: ”The current proposal for tax-free childcare is complicated, with resources focused on those with the highest incomes – the wrong priority at a time austerity.

“In education the attainment gap remains unacceptably wide and static – almost two-thirds of children fail to achieve the basics of five GCSEs including English and maths. Poor children are less likely to be taught by good teachers.”