Employers should raise low-paid workers' wages to tackle 'in-work poverty,' says Alan Milburn

The commission, chaired by the former Labour Cabinet minister Alan Milburn, warned there is a danger that social mobility will go backwards (Getty Images)

Employers should increase the wages of their low-paid workers to tackle the scourge of "in-work poverty" in Britain, the Government's watchdog on poverty recommended today.

In its first "state of the nation" report, the Social Mobility and Child Poverty Commission proposed cuts in perks for well-off pensioners, such as free TV licences and winter fuel allowances, with the money used to help children in poor families. It said state pension costs are rising by 17.5 per cent during the course of the five-year parliament, wiping out more than half of the welfare savings planned for 2014-15.

Calling for a shift in taxpayers' support from the old to the young, the commission said: "We do not believe that favouring pensioners over their children and grandchildren will be a sustainable position over the long term if a meaningful dent is to be made in the UK's high levels of child poverty and low levels of social mobility."

Its hard-hitting 340-page report said Britain " remains a deeply divided country" and called for urgent action to prevent the better off reaping the benefit from the economic recovery while those on low incomes fall further behind.

The commission, chaired by the former Labour Cabinet minister Alan Milburn, warned that social mobility could go backwards and the fall in child poverty over the last 10 years could grind to a halt. He said 2m children could still be living in poverty in 2020, and there was little prospect of hitting the statutory target to abolish child poverty by that date.

Mr Milburn said the recovery was "unlikely to end a decade-long trend of the top half of society prospering and the bottom half stagnating".

The commission found that two-thirds of the 2.3m children in poor families today that had an adult in the household in work, and three-quarters of this group had someone working full-time. "Today child poverty is a problem for working families rather than the workless or the workshy," said Mr Milburn, who warned that work is not "a cure for poverty."

The commission said: "Recent falls in family incomes have put the squeeze on many low and middle income families. When combined with rises in house prices, university fees and youth unemployment, these factors have induced a sense of fear among many average-income parents that their children will be worse off than they were."

With the Government no longer able to afford £30bn a year in tax credits to top up low wages, Mr Milburn said employers should "step up to the plate" in a national effort to help the low paid, who are "the forgotten people of Britain."

He urged the Government to raise the £6.31-an-hour national minimum wage and encourage sectors such as finance and construction to pay the higher "living wage," which is worth £7.45 an hour and £8.55 an hour in London.

Mr Milburn said: "The taxpayer alone can no longer afford to afford the shoulder the burden of bridging the gap between earnings and prices. The Government will need to devise new ways of sharing that burden with employers in a way that is consistent with growing levels of employment. Making headway on reducing poverty and improving social mobility requires a fresh settlement between what the state, the market and the citizen does."

He warned: "If Britain is to avoid being a country where all too often birth determines fate, we have to do more to create more of a level playing field of opportunity."

The commission found that class is a bigger barrier than gender in getting a top job and called on the professions to end unpaid internships. "Senior professionals are still more likely to be privately schooled and privileged men," said Mr Milburn. His commission found that the Coalition's cuts since 2010 have been "regressive," with the bottom 20 per cent of society hit harder than any group apart from the top 20 per cent.

It proposed switching help with child care costs from taxpayers on the 40p in the pound rate to poorer families on universal credit. It said the Government should pledge to end long-term unemployment among under-25s, and cut benefits for young people who refused job or training offers.

David Cameron and Nick Clegg opposed the call to switch money from the old to the young. "Punishing pensioners isn't going to help a single child achieve more in life," Mr Clegg said.

Paul Green, director of communications for Saga said: "Alan Milburn appears to be a bit bonkers and is barking up the wrong tree. Playing the politics of envy is not way to create a cohesive society. Young people are not poorer because their parents have worked hard and are richer."

THE COMMISSION'S 10-POINT PLAN

The government should:

* ensure all parts of the country benefit from a "balanced recovery"

* aim to eliminate long-term youth unemployment

* reduce in-work poverty by raising the minimum wage, paying job agencies for the earnings people receive and switching childcare funding from higher-rate taxpayers to those on Universal Credit

* reallocate public resources from the old to the young

* make early years' provision universal, affordable and high quality and do far more to "help parents to parent"

* give schools dual-mandate of raising the bar on standards and closing the gap on attainment

* provide extra incentives for teachers to teach in the worst schools

Employers should:

* provide higher minimum levels of pay, better career prospects and skills training

* ensure half of all firms offer apprenticeships and work experience

* end unpaid internships and recruit more widely