School-leavers should be encouraged to swear an oath of allegiance to Queen and country, says a report commissioned by Gordon Brown on British citizenship.
Report author, ex-attorney general Lord Goldsmith, says it would give teenagers a sense of belonging.
Council tax and student fee rebates are suggested for people who volunteer - as well as a "Britishness" public holiday.
The PM's spokesman said he welcomed the "interesting" review, adding that it had sparked "quite a lively debate".
Graduation ceremonies
Lord Goldsmith, who quit government in June, believes that citizenship ceremonies for teenagers would help improve their sense of what it means to be a British citizen.
"Certainly there isn't a crisis of national identity, but the research does tend to show there's been a diminution in national pride, in this sense of belonging," he told BBC Radio 4's Today programme.
"The citizenship ceremonies, which are just one of the many things I have suggested, are a way of marking that passage of being a student of citizenship to a citizen in practice.
Citizenship ceremonies already exist for immigrants and the report suggests holding them in schools, where youngsters who are about to leave the school and move on to work or further education could participate.
"It does make sense to promote a sense of shared belonging, a sense that you are part of a community with a common venture, to integrate better newcomers to our society and be clearer about what the rights and responsibilities are."
Who is the Oath to?
Lord Goldsmith said that while he favours an oath of allegiance to the Queen, the statement could be a pledge of commitment to the country or a statement of what the rights and responsibilities of citizens are.
He also stressed that he could not see why Republicans would not want to swear an oath, even though they may not believe in the present system of government.
However, Graham Smith of the group Republic, which campaigns for the abolition of the monarchy, questioned whether children who refuse to take part will be told "they are somehow less British or less loyal or less patriotic".
Bank holiday
Lord Goldsmith says a new British national day should be established by 2012 to coincide with the Olympics and what will be the Queen's Diamond Jubilee.
It could operate in the same way as Australia Day, which is a public holiday on 26 January and is used to celebrate what it means to be an Australian.
A new "Deliberation Day" would be held before each General Election to encourage political debate and other events.
The peer also proposed that ministers should consider withdrawing Commonwealth and Irish citizens' right to vote in UK elections.
But campaign group Unlock Democracy described this as a "gross insult to expect soldiers to die for this country while removing their right to have a say".
Lord Goldsmith has called for Britain's old treason laws to be scrapped or reformed. At the moment they include sleeping with the wife of the heir to the throne, which is punishable by life in prison.
The peer has also hinted at updating the national anthem by removing verses which are rarely performed.
Against
However, John Dunford from the Association of School and College leaders said the citizenship ceremony was "a half-baked idea".
Shadow justice secretary Nick Herbert said people would see straight through "synthetic patriotism" and that it was "profoundly un-British" to make them swear oaths of allegiance.
Lib Dem leader Nick Clegg said taking an active role in society was a better way of creating a sense of belonging for teenagers than asking people to swear allegiance.
A Scottish Government spokesman said it did not support the plan and did not believe it would find favour with parents or school pupils.
Welsh Deputy First Minister Ieuan Wyn Jones said: "I don't think that's appropriate myself."
And Labour peer Baroness Kennedy said: "I think this is a serious mistake - I think it's puerile and I think it's rather silly.
"The symbols of a healthy democracy are not to be found in empty gestures and I'm afraid I see this as an empty gesture."
Key Notes
· Citizenship ceremonies for all young people - with possible inclusion of oath of allegiance to Queen
· A British national day by 2012, linked to Olympics and the Queen's Diamond Jubilee
· Scrapping or reforming ancient laws of Treason
· Tuition fee and council tax rebates for volunteers
· 'Language loans' for newcomers to help them learn English
Other Citizenship Ideas
Ex-attorney general Lord Goldsmith has published his review of British citizenship. Here are some of the key suggestions in his report:
· A "small" council tax discount for people who complete volunteer work in the community, like organising neighbourhood recycling projects, helping children to learn to read in schools or setting up a residents' association
· Reduction in university tuition fees and student loans for university undergraduates who carry out volunteer work
· Extending citizenship ceremonies to all young people, with the possibility of incorporating the oath of allegiance to the Queen and the pledge of commitment to the UK
· A British national day by 2012, to coincide with the Olympics and what will be the Queen's Diamond Jubilee
· Reform or scrapping of Britain's old Treason laws
· A review of the current ban on asylum seekers taking paid jobs
· Reducing the fee charged for becoming a British citizen from £655, with a larger discount for foreigners who apply as soon as they become eligible
· Creation of a new National Citizens' Corps, whose members could provide advice to others on training and development in citizenship
· Setting up a new "Deliberation Day" to be held before each General Election to encourage political debate and other events
· A special citizenship ceremony to be hosted each year and possibly attended by the prime minister and a senior royal, to recognise "outstanding acts of volunteering"
· The setting up of "Investors in Communities" - a title earned by businesses which allow staff paid time to carry out community work
· Foreigners applying for citizenship should follow a new credits-based system under which they would earn points for various activities in the community. For instance, working in key jobs, like the NHS, could earn additional credits
