The report by the Department for Culture, Media and Sport has called for "new multi-purpose community venues to be built to allow local communities to stage events which reflect their interests."

It has also suggested that lottery money should be used to set up bursaries to help talented people from deprived areas to have top quality training and coaching.

The report said that art and sport helped to build self-confidence and could encourage people to see themselves as part of a community as well as helping help young people to find work find jobs.

In these ways sports and the arts could "make a real difference to health, crime, employment and education in deprived communities," the report added.

'Something to live for'

Culture Secretary Chris Smith said he had seen evidence of the possible results when he visited a homeless hostel in the east end of London last week.

"Four years ago that such a dreadful place that the furniture had to be nailed to the floor," he said.

Smith: Art and sports can transform an area

"The staff had to go around in twos and threes for their safety. It was a very depressing environment.

"But now because the residents of that hostel have been involved in artistic activity. Creating paintings and mosaics; working with the school next door, it has completely transformed things.

"It has given them something to live for. It has given them a sense of self-confidence and it has improved the entire atmosphere of the place.

Mr Smith added: "That is a very small micro example but I believe that it could be replicated on a much larger scale across the country."

Ending the underclass

Combating social exclusion has been a major policy theme of the Labour government since it came to power.

Prime Minister Tony Blair set up his Social Exclusion Unit in 1997 to develop policy initiatives to try to bring the underclass back into the mainstream of society.

It has already proposed plans to deal with truancy and school exclusions; to improve the worst council estates; to help households with no one in employment; and to help people who are sleeping rough.

In its latest report, published on Tuesday, it called for secondary school children to be offered personal advisers to stop them drifting into unemployment and crime.