Income inequality is higher in Britain than any other major economy, apart from the US, a new study found.

The gap between rich and poor was widest in the UK than any other European nation, the Institute for Fiscal Studies (IFS) said.

However, inequality in total net household income has changed little since rising sharply in the 1980s.

The UK system of state transfers, especially tax credits, has been “very successful at mitigating rising inequality”, according to the study.

But the report said that about one in six children in the UK are born to single parents, a situation “heavily concentrated in low-income and low-educated families”, and one that is much more prevalent than on the continent.

The gender hourly wage gap is strongly associated with childbirth and rises from less than 10% at the point of childbirth to 30% 12 years after the first child is born, according to the study.

It found stark geographical inequalities in the UK with average weekly earnings in London 66% higher than those in the North East.

And men in the most affluent areas can expect to live nearly 10 years longer than those in the most deprived areas, and this gap is widening.

The study was released to mark the launch by the IFS of a major five-year investigation into the causes of inequality funded by the Nuffield Foundation and chaired by Nobel Laureate Professor Sir Angus Deaton.

He told the Guardian: “There’s a real question about whether democratic capitalism is working, when it’s only working for part of the population.

“There are things where Britain is still doing a lot better [than the US]. What we have to do is to make sure the UK is inoculated from some of the horrors that have happened in the US.”

He said geographic inequality appeared to be a factor in the UK, with London benefiting disproportionately compared with other parts of the country.

“People really feel that not everybody is having a fair crack anymore. There’s a sense that if you live in one part of Britain away from the capital, lots of bad things are happening, while lots of good things are happening in the capital – and you don’t see why you should be left behind that way.”

IFS director Paul Johnson said: “I can’t think of anything more important than understanding what drives the inequalities we see today and working out what we might do to influence them.”