Government plans for skills will fail to address illiteracy and innumeracy in millions of adults and leave the UK trailing behind global competitors for decades, a Treasury review has found.
The Leitch review of skills, commissioned by Chancellor Gordon Brown, found that 12 million adults will still not have the numeracy skills expected of an average 11-year-old by 2020, even if all current targets are met.
Four million adults would still not have the expected literacy skills in 15 years' time. "This is an urgent task," Lord Leitch said.
"The scale of the challenge is daunting. Delivering current plans will be difficult. Even then, it will not be enough to supply the skills that employers, employees and our nation needs to advance. The UK must become world-class on skills - for all of our sakes."
Lord Leitch, chairman of the National Employment Panel, said skills had improved over the last decade because of an excellent higher education system, reforms to vocational training and improving schools.
But better skills among young people would not be enough, he said. More than two-thirds of the working population in 2020 will have already completed their compulsory school education.
The report's projection of improvements in skills to 2020, which assumes all targets are met, shows marked improvements as well as predicting persistent problems in adult numeracy and literacy.
The proportion of the workforce with a degree is expected to rise from 27 per cent to 38 per cent, while the proportion with no qualifications would fall from 13 per cent to just 4 per cent over the 15 year period.
Reaching these targets is worth pound;3 billion net to the economy each year, the report concludes.
Further improvements to low skills will mainly improve employment levels, while increased intermediate and higher level qualifications will mainly boost the UK's low productivity.
Lord Leitch is due to publish a final report next year with recommendations about the mix of skills needed and the balance of responsibility between government, employers and individuals.
Phil Hope, the skills minister, said: "The report confirms that our strategy on skills so far has been the right one. We now have an analysis of what the shortage is. Now we will look at what tools we need."
Dan Taubman, national education officer for Natfhe, said the report showed that adult education in advanced skills was essential to economic prosperity. But this part of colleges' work was under financial pressure, he said.
"The Government's current approach to further education is to target all the public money at teenagers and very basic skills and qualifications for adults.
"Natfhe has already said that current further education priorities are very short term and are storing up problems for the future, and Lord Leitch's findings confirm our fears.
"How can we reskill adults if the courses close down and the tutors disappear?"