The second annual State of the Nation Report which was published and laid before Parliament yesterday from the Social Mobility and Child Poverty Commission (SMCP), shows that Britain is on the brink of becoming a permanently divided nation.

The Report says that while a strong economic recovery and a record number of people in work are welcome, the social recovery needed to get Britain back on track to abolish child poverty has not happened. Instead it predicts 2020 is set to mark the end of the first decade since records began without a fall in absolute poverty.

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 by-pass the poorest in society.”

It warns 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 unless radical new approaches are taken by the next government to meet this 2020 challenge. It finds no political party is being honest about the impact of planned spending cuts or has sufficiently ambitious plans to tackle entrenched levels of low pay.

It comes to the reluctant conclusion that there is no way the government can meet the statutory target to eradicate child poverty by 2020. It calls on the next government to supplement the existing targets with new measures to give a more rounded picture of poverty and to publish a new timescale for achieving them.

The report advises the government to commit to the following objectives:

  • For macro-economic policy, to recouple economic growth with earnings growth.
    Closing the chasm between low income households and the rest can no longer rely on tax credits to do all the heavy lifting – employers will have to raise wages and workers will have to increase their hours. The key recommendation is that the UK should commit to becoming a Living Wage nation by 2025 at the latest.
  • For fiscal policy, to ensure future fiscal consolidation minimizes the impact on child poverty and social mobility. Tough choices will have to be made but the working poor will need to be better protected. The recommendation is that the Office of Budget Responsibility should publish an assessment of each Budget for its impact on social mobility and child poverty.
  • For social policy, to ensure that young people are not left behind as the labour market moves ahead. Young people are losing out on jobs, wages and housing so the next government should commit to end long-term youth unemployment by 2020. The key recommendation is that half of all larger workplaces should offer quality apprenticeships.
  • For housing policy, to ensure it contributes to more social mobility and less child poverty. This generation of young people is far less likely to progress onto the housing ladder than their parents’ generation. The key recommendation is to create new forms of housing tenure through expanded shared ownership schemes and reform of the private rented sector.
  • For education policy, to ensure it closes the attainment gap between disadvantaged children and their better off peers. Without a new focus the gap in attainment between the poorest children and their better-off peers will take 20 years to even halve. The key recommendation is that the best teachers should be paid more to teach in the worst schools to help end illiteracy and innumeracy in primary school by 2025 and to halve the attainment gap in secondary school by 2020.
  • For universities and employers, to ensure they recruit from a broader range of talent. Universities and professions are poised to expand dramatically and this needs to bring with it a social mobility dividend. The key recommendation is for unpaid internships to be made illegal and for 5,000 more pupils from a free school meals background to be going to university by 2020.

Rt Hon Alan Milburn, Chair of the Commission said: “The circumstances are so different, the challenges are so great that the old ways of thinking and acting that have dominated public-policy making for decades will simply not pass muster. What worked in the past will not serve as an adequate guide for the future. A new agenda is needed.”

Mike Kellyhead of Living Wage at KPMG, comments: “Committing to voluntarily becoming a Living Wage nation by 2025 is a realistic ambition given the pace of change over the last two years. For far too long have low income households been struggling to make ends meet. The fact remains that more than five million people are earning less than they need to live on.  Too many families still struggle to afford the basics, meaning we face a scenario that, in 2014, should have long been consigned to the footnotes of history.

“Achieving this target by 2025 for many may seem farfetched for some, but more than 900 organisations have already recognised that employing staff stuck in the working poverty trap is bad for business. Of course, change cannot happen instantly, but making an initial assessment is an important first step. Through careful change management, businesses can effectively become a Living Wage employer by the set date.

“We have already seen the benefits of paying a Living Wage in terms of lower staff turnover and increased productivity.  Put simply, it means moderate investment for maximum return.”

TUC General Secretary Frances O’Grady said: “The report rightly highlights that in-work poverty is a significant and growing problem in the UK. It makes clear that if we want to improve social mobility we need to see both fair pay rises and a strong social security safety net.

“The current government’s approach to child poverty has failed. A drastic rethink is needed as the threat of a “permanently divided society” is too serious to ignore.

“This is a rich report and its warnings must not go unheeded by ministers.”