Panel concludes that riots were fuelled by a lack of opportunities for young people, poor parenting and suspicion of the police

An independent panel set up by the government to study the causes of last summer's riots calls for more people to be given "a stake in society" to help prevent a repeat of the disturbances.

The report, by the Riots Communities and Victims Panel, concludes that the riots were fuelled by a range of factors including a lack of opportunities for young people, poor parenting, a failure of the justice system to rehabilitate offenders, materialism and suspicion of the police.

"When people don't feel they have a reason to stay out of trouble, the consequences for communities can be devastating – as we saw last August," said Darra Singh, chair of the panel.

The report, released on Wednesday, says: "The key to avoiding future riots is to have communities that work." Recommendations include fines for schools that fail to teach children to read properly; earlier and better support for troubled families; a "youth job promise" to get more young people into work; and primary and secondary schools to "undertake regular assessments of pupils' strength of character".

"The answers lie in different places: some are about personal or family responsibility and others are about what the state or the private or voluntary sectors should do better or differently," it says. "Public services describe a group of approximately 500,000 'forgotten families' who bump along the bottom of society."

The panel, which visited 21 communities and interviewed thousands of people affected by the riots, says its wide-ranging recommendations "must be enacted together" if the risk of further riots is to be reduced.

Singh said: "We must give everyone a stake in society. There are people 'bumping along the bottom', unable to change their lives. We urge party leaders to consider the importance of all of our recommendations. Should disturbances happen again, victims and communities will ask our leaders why we failed to respond effectively in 2012."

The report suggests the government's Troubled Families Programme, set up after the riots, may be aiming at the wrong target. TFP, led by the former "respect tsar", Louise Casey, identified 120,000 families needing intervention to turn their lives around and prevent reoffending.

However, of the 80 local authorities polled by the panel, only 5% thought there was any crossover between families targeted by TFP and the families of rioters. The report raises concerns that some schools are excluding pupils for the wrong reasons. Children should be excluded only as a last resort, and only ever be moved to quality alternative provision. If children leave school unable to read properly, the school should face a financial penalty covering the cost of the child getting the extra help they need at their new school, the report says.

"Every child should be able to read and write to an age-appropriate standard by the time they leave primary and then secondary school," the report says.

"If they cannot, the school should face a financial penalty equivalent to the cost of funding remedial support to take the child to the appropriate standard."

It also urges schools to help children "build personal resilience" to help them avoid getting involved in future rioting. It claims that what often determines whether someone makes "the right choice in the heat of the moment" is "character", which it defines as "self-discipline, application, the ability to defer gratification and resilience in recovering from setbacks".

Local businesses should get more involved with schools to promote youth employment and the government should provide a job guarantee for all young people out of work for more than two years, it says.

The report points out that half the recorded offences in the riots were for looting, often of high-value products, including designer clothes, trainers, mobile phones and computers. It calls for young people to be "protected from excessive marketing" and for the Advertising Standards Authority to work to increase children's resilience to advertising. It recommends the appointment of an "independent champion to manage a dialogue between government and big brands".

The four-member panel – Singh, Simon Marcus, Heather Rabbatts and Lady Sherlock – was nominated by the three main political parties. The report is one of several pieces of research into the causes of the riots. A study by the Guardian and the London School of Economics, based on interviews with 270 rioters, revealed that frustration at the way police engage with communities was a major cause. It also showed that mMany rioters also conceded that their involvement in looting was simply down to opportunism, giving them an opportunity to acquire desirable consumer goods.

Camila Batmanghelidjh, founder of the charity Kids Company, said of Wednesday's report that the 500,000 figure for families in difficulties whose needs were not being picked up was an underestimate. "I'd say it is bigger than half a million, because of the scale of what we are seeing."

She added that the panel had adopted "a middle class model" by suggesting the key to preventing offending lay in working with young people's families. "They are still assuming the young person's family is intact, whereas 84% of the children who come to us are runaways. These children have predominantly been seriously maltreated by their families," she said.

Labour MP Diane Abbott, whose Hackney constituency saw some of the fiercest rioting, said: "I welcome the emphasis the report puts on the social and economic causes of the riots. In the first 48 hours after the riots, it was right to focus on restoring order. But, since then, the prime minister has insisted on putting the riots down to "criminality, pure and simple". This report completely demolishes his kneejerk response ...

"What we have seen really reflects an unspoken crisis in the country's efforts to raise educational standards in some of the inner cities. A number of communities feel they don't have any control over their own lives. They feel harassed by the police and marginalised by their job prospects – and are bombarded with reminders of lives they will, in all likelihood, never have. In the week after we have seen the top rate of tax for millionaires cut and the Conservative party hawking intimate dinners with the prime minister for £250,000 a go, I think communities like mine are absolutely sick of being told 'we're all this together', when it's absolutely clear that we're not all on it together."

Batmanghelidjh said it was "a cheek" to suggest it was character failings on the part of young people that led them to join in the rioting, rather than wider social issues such as deprivation and unemployment.

Shauneen Lambe, executive director at Just for Kids Law, which has acted for numerous young people arrested after the riots, agreed that unemployment and illiteracy played a part. "One of the things that really concerns us is how young people are criminalised in a way that previous generations just weren't – which really blights their job prospects."

The job prospects of the young people convicted following last summer's riots were especially bleak, she said.

Earl Jenkins, a learning support mentor at Calderstones school in Liverpool, who was one of up to 60 youth workers who went on to the streets of Toxteth during the disturbances to persuade youngsters not to get involved, agreed that joblessness was a factor. "If you've got nothing to lose, you'll do what you can to survive, won't you?"

Welcoming the report, the communities secretary, Eric Pickles, said: "My department's Troubled Families programme will tackle some of the most entrenched social problems in our country by getting members of 120,000 families off the streets, back into school and on a pathway to work."