Poorer pupils are increasingly making less progress at secondary school in England compared with their better-off peers.
The Social Mobility Commission said poorer pupils were often overtaken by their more affluent peers even if they had outperformed them at primary school.
The gap, which was most apparent in poor white children, has widened every year since 2012.
Headteachers told the researchers that reduced school funding was already putting pupils' progress at risk and that prospects for improvement were 'bleak' despite the Government's new proposed funding formula.
Researchers examined the GCSE results of pupils on free school meals and those who were not, across two sets of eight subjects.
These results were then measured in relation to how the pupils had performed in their Key Stage 2 Sats tests, in their final year of primary school.
Part of the problem is the treatment of children on free school meals, who are more likely to be placed in lower sets, have access to less qualified teachers and have lower expectations set for them by schools.
Children on free school meals achieve almost half a GCSE grade less progress in core subjects than better-off pupils, the report said.
Home life had a substantial impact on progress with poorer children less likely to benefit from effective homework routines, access to books and computers and parents being less likely to help with the work.
The report said poorer children were also more at risk of behavioural issues and being excluded.
Children from low-income backgrounds are also affected by the fact they are more at risk of behaviour issues and exclusion from schools.
Poor pupils in cities do better than those in rural areas, relative to their more affluent peers, and the gap in progress is greatest in large schools with average levels of pupil disadvantage, according to the research.
Social Mobility Commission chairman and Labour former cabinet minister Alan Milburn said: "One of the shocking features of our education system is that the gap between poor pupils and their better-off peers increases during their time in school rather than reducing.
"This new research suggests that the progress they make in primary school is all but wiped out during secondary. The consequence is that successive generations of poor kids are being let down by a school system that is supposed to be there to help them move up and get on.
"This is not just an issue for the Government. If social mobility is to improve, schools need to do more to bridge the education attainment divide between poorer children and their better-off classmates. Closing the gap needs to be top of mind for every teacher in every school.
"The Government can help by setting an explicit target for narrowing the attainment gap at GCSE and by doing more to get the best teachers into the toughest secondary schools."
The commission made several recommendations including calling on the Government to ensure funding cuts do not exacerbate the problem and to make additional funding available for high quality specialist provision for SEND pupils.
More efforts should be made to recruit good teachers in areas where poorer pupils make less progress and plans to increase selection in a new wave of grammar schools should be stopped, the commission said.
A Department for Education spokesman said it was working to give everyone a 'fair chance' at school but acknowledged there was more to be done.
He added: "That's why we have set out plans to create more good school places, in more parts of the country, by ending the ban on new grammar schools, where we know bright children from disadvantaged backgrounds thrive.
"We have announced 12 Opportunity Areas across England, backed with £72m investment, where we are working to break down the barriers to social mobility that too many still face."