Brighton and Hove is a divided city with a widening gulf between the rich and poor, a report reveals today.

On one side of the gap are the young, affluent professionals who embody the city's image as the buzzing cultural capital of the South-East.

However, beneath the surface are high levels of illiteracy, homelessness, crime and poverty with 20,000 people unable to read.

The Brighton and Hove Regeneration Partnership today publishes a far-reaching report whose over-riding theme is the urgent need to break the cycle of poverty.

The report says teachers, health care professionals, police and transport workers are the key, but many are being priced out of the city by soaring housing costs. As a result, cheaper housing is vital.

The report was drawn up following a £250,000 investigation in which 5,000 people were interviewed over 18 months.

It concludes: "Brighton and Hove is a city with marked differences in wealth, health and employment. These inequalities are not good for business.

"We need to reduce them by taking steps to identify and eliminate the barriers preventing people from getting in to work and playing their part in society.

"If the city is to prosper, existing companies need to be willing and able to grow here.

"If the pool of unemployed, illiterate and untrained adults can acquire the appropriate skills these people can be recruited to posts which are hard to fill, to keep employers in the area."

Currently, less than 20 per cent of 16-year-olds achieve five GCSE passes and 200 leave school every year without an exam pass to their name.

School-leavers need to be brought up to speed with the latest training if they are to find work in the boom sectors of IT and new media.

The three other priorities are building better neighbourhoods, improving transport and keeping the city "looking good".

Members of the city's 125,000-strong workforce earn an average of £18,621, more than £3,000 below the figure for the South-East.

Unemployment has fallen from 12 per cent to less than four per cent in the past ten years, but a shortage of affordable childcare is proving a barrier to mothers returning to work.

Although the city has attracted more than £100 million for urban regeneration schemes, including almost £50 million under the New Deal project in East Brighton, the money will soon dry up and investment will have to be sought from Europe and private companies.

However, the report ends on a positive note for the city's future, saying: "The picture has improved markedly in the past few years."

The strategy was being unveiled at a meeting in the Royal Albion Hotel.