The National Institute of Adult Continuing Education said language courses were "worryingly patchy" in the face of demand from migrant workers from new European Union countries.
Its final report following an inquiry into teaching of English for speakers of other languages (Esol), leaked to FE Focus, said free courses up to level 2 (GCSE- equivalent) would have to end. But that it would be "unfair and discriminatory" to remove the entitlement to free English-language teaching while free literacy and numeracy courses were still available to native speakers.
The Learning and Skills Council already spends pound;280 million a year on 540,000 Esol students.
In the long term, the report recommends that anyone in need of English language teaching should have a free assessment of up to three hours, and free teaching to achieve level 1 (GCSE grade D-G equivalent). After that, they should be charged at vocational rates, which could be paid for through a loan scheme. Subsidies should be available for those in financial need.
But where employers are recruiting abroad, they should be obliged to fund even the most basic Esol courses.
The report says: "Esol provision is critically important to the UK. It is essential to help secure social inclusion and help build stable and successful communities. It is also critical to policies on skills. There will not be enough young people coming on to the labour market to meet all the demands for new and changed skills. The shortfall will have to be met by retraining adults and migrants."
The report also suggested that inspectors review the state of Esol teaching and recommend ways to improve it. Employers should also be actively discouraged from hiring unqualified teachers and be given incentives to put more teachers on permanent contracts and improve teaching consistency.
The Department of Trade and Industry should require agencies recruiting from the EU to pay for workers to reach an appropriate level of English, the report added.