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Prisoners will be expected to work 40-hour weeks to raise money for victims of crime and help cover the cost of keeping them behind bars Justice Secretary Ken Clarke is to say.
The Government wants private firms to employ inmates in 9-to-5 jobs within prisons to end what Mr Clarke believes is a now a life of "enforced, bored idleness where getting out of bed is optional".
Plans are also being examined for a purpose-built private-sector factory prison where criminals could earn higher wages to further boost the cash generated by the system. Around a fifth of the money would be earmarked to compensate victims - a money-raising system promised in both coalition partners' general election manifestos.
Detailed plans for how to use the rest of the cash generated are still being examined but officials are looking at forcing offenders with families on benefits to directly fund their payments. More will be used to help meet the costs of running the prison system as the Ministry of Justice looks to find £2 billion of savings as part of the drastic Whitehall-wide spending review.
The policy is a revival of powers introduced by the last Tory government under John Major in 1996 but never implemented by Labour which allow money from work outside prison to be used to help victims. That would raise only £1 million a year from those held in open prisons however, so the Government is to extend the scope of the Prisoners' Earnings Act to cover money earned behind bars.
Mr Clarke has faced criticism from some sections of the Tories for pushing for a greater emphasis on rehabilitation and community sentences in a bid to cut the record prison population which last week hit 85,495.
But he will aim to win back support with a call for "hard work" to become the norm for offenders when he addresses party activists gathered in Birmingham.
"I want to revive a policy of John Major's last Conservative government and make deductions from the earnings of working prisoners to provide compensation for victims of crime," he is expected to say.
"In order to raise those funds, we need to instil in our jails a regime of hard work. Most prisoners lead a life of enforced, bored idleness, where getting out of bed is optional. If we want to reduce the crimes these people will commit when they get out, whilst boosting the amount that can be provided for victim support, we need as many prisoners as possible to work hard for regular working hours.
"We have to try to get those people who have the backbone, to go straight. To handle a life without crime when they have finished their punishment. So we will make it easier for prison governors to bring more private companies into their jails to create well-run businesses, employing prisoners in regular, 9-to-5 jobs."