More than 500,000 British workers have been swept into working poverty over the past five years, according to a report that shows the number of people with a job but living below the breadline has risen faster than employment.

In the latest sign that the link between entering work and making ends meet has become increasingly frayed in 21st-century Britain, the Joseph Rowntree Foundation (JRF) said that the number of workers in poverty hit 4 million last year, meaning about one in eight in the economy are now classified as working poor.

Nearly all of the increase comes as growing numbers of working parents find it harder to earn enough money to pay for food, clothing and accommodation due to weak wage growth, an erosion of welfare support and tax credits and the rising cost of living.

Half a million more children have become trapped in poverty over the past five years as a direct consequence, reaching 4.1 million last year, the charity’s report added. It means that in a typical classroom of 30 children, nine would come from a household in poverty.

Campbell Robb, chief executive of the JRF, said: “We are seeing a rising tide of child poverty as more parents are unable to make ends meet, despite working. This is unacceptable.”

In the findings of JRF’s report, UK Poverty 2018, the number of children who slipped into poverty from a working family rose more steeply than at any time for 20 years.

It said parents getting stuck in low-paid work, especially in retail and hospitality jobs in hotels, bars, restaurants and shops, were among the drivers for the increase. It said more companies could pay the real living wage, which is higher than the government minimum, to help alleviate in-work poverty.

The charity defines the poverty line as being when households earn less than 60% of the median income, adjusted for size and type of household. The average median income for UK households after housing costs was £425 a week (£22,100 a year) in 2016-17.

Margaret Greenwood, the shadow work and pensions secretary, said the report should be a wake-up call for the government. “There is something seriously wrong when the number of people in work in poverty is increasing faster than employment,” she said.

The JRF analysis shows that gains for working families from the rising national living wage have been far outweighed by changes to tax credits and benefits designed to top up low wages. The living wage has steadily risen from £7.20 an hour in 2016 to £7.83 this April and will rise again to £8.21 next April.

It called on the government to end its four-year freeze on benefits, which began in 2016, a year earlier than planned, saying it would help lift 200,000 people out of poverty and give 14 million people on low incomes an extra £270 on average in 2020-21.

Research from the Institute for Fiscal Studies, the tax and spending thinktank, has shown that government cuts made under George Osborne’s policy of austerity have left the poorest 10% in society much worse-off than the richest since 2015.

Although Theresa May promised to bring austerity to an end at the autumn budget, as Britain prepares for Brexit, many economists say that milestone has yet to be reached.

More than 14 million people are struggling in poverty, or about one in five of the total UK population, according to the JRF. Of these, 8.2 million are working-age adults, 4.1 million are children and 1.9 million are pensioners. Eight million people live in poverty in families where at least one person is in work.

A spokesperson for the Department for Work and Pensions said it disagreed with the report, and that there were 1 million fewer people than in 2010 living in absolute poverty, which is a higher threshold than the measure used by the JRF.

They added: “With this government’s changes household incomes have never been higher, income inequality has fallen, taxes are down for families and businesses and there are fewer children in workless households than ever before, boosting their prospects in life.”