The report concludes that 4.8 million workers, often women, earn less than a living wage.
Young people have been especially hard hit by deteriorating economic conditions. The report said that two-thirds of Britain's poor children now live in families with at least one working adult. In 1997, that was less than half.
Public spending, particularly tax credits that subsidized stagnating wages, had in the past been the main engine that drove reductions in child poverty, but government austerity following the global financial crisis "removes that prop."
"The principal problem is that those working parents simply do not earn enough to escape poverty," the report said, adding that Britain has one of the highest rates of low pay in the developed world.
In a recommendation that will stir controversy, Milburn said that wealthy retirees will have to take a bigger share of the hit from austerity programs. It isn't sustainable to continue "favoring pensioners over their children and grandchildren."
Several government programs in Britain, such as a winter fuel allowance, are given to older people regardless of income and they remain firmly engrained as an entitlement.
Any cutbacks would be politically challenging. Deputy Prime Minister Nick Clegg objected to the idea even before the report was published. "Punishing pensioners isn't going to help a single child achieve more in life," he wrote in a piece in the Daily Telegraph.
But the report struck a nerve among anti-poverty campaigners, who noted the need to comprehensively act on the problems of the poor. Alison Garnham, chief executive of the Child Poverty Action Group, appealed for government "to help families suffering problems like low pay, lack of full-time work and job insecurity."
The commission was set up to monitor the progress of government and others in tackling child poverty and improving social mobility. It has been studying the issue for nine months.