Though 750,000 new qualifications have been awarded in numeracy or literacy, half these were gained by 16 to 18-year-olds already enrolled on college courses, the report stated.
The benefit to adults targeted in the Government's vaunted Skills for Life strategy is negligible, according to the annual report of the Adult Learning Inspectorate.
David Sherlock, ALI's chief inspector, said there had been a "depressing lack of improvement" in adult literacy and numeracy in the four years since the scheme was launched.
"It is debatable how much extra value was added by the programme," he added. "The amount of good provision in general FE colleges has fallen.
"This is despite an extraordinary injection of funds and capacity-building from the Government's Skills for Life campaign."
Skills for Life was launched in 2001, setting an ambitious target of 750,000 adults achieving national certificates in literacy and numeracy by 2004, and 1.5 million by 2007. This has now been extended to 2.25m adults achieving the qualifications by 2010.
Mr Sherlock said there had been a failure to address critical weaknesses across all types of training organisation, and there was "negligible progress" in improving staffing and assessment arrangements.
The report however praised the "dramatic improvement" in skills training in the workplace since ALI began inspecting training companies four years ago.
Then ALI reported that nearly 60 per cent of work-based training organisations were failing inspection. Now, 75 per cent are succeeding and the number achieving good or outstanding grades has doubled, the report revealed.
"That means more adults and young people gaining vital skills and qualifications, getting jobs and fulfilling their potential," Mr Sherlock said.
"It means more employers able to find staff with the skills and experience to improve business performance and compete in a world economy.