The Committee on Citizenship and Civic Engagement would like ministers to put greater emphasis on a need for "shared values of British citizenship", especially in faith schools.
The Committee says that the government has associated promoting British values with the Prevent strategy - which aims to prevent radicalisation and terrorism - when these values: "should be taught as important in their own right, not simply as part of a counter-terrorism policy."
The values peers want to promote are "democracy, the rule of law, individual liberty and respect for the inherent worth and autonomy of every person."
Chairman of the Committee, Lord Hodgson of Astley Abbotts, said: "There are British values which we all need to accept, share and defend. Equality before the law is one cornerstone."
"These are the red lines which govern acceptable behaviour in modern Britain."
Lord Hodgson added: "Our values have been insufficiently promoted across all Government departments and appear not to be upheld in some communities.
"Government action has made these values needlessly toxic by linking them to counter-extremism rather than arguing for them in their own right."
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