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Thousands of offenders will avoid jail under an overhaul of sentencing powers that will focus on cutting reoffending.
The sentencing Green Paper will aim to stop the revolving door of crime, divert criminals with mental health, alcohol or drug abuse problems into treatment and bring in a rehabilitation revolution with a series of programmes designed to stop repeat offenders from reoffending.
Other proposals include halving sentences for those who plead guilty early and curtailing judges' powers so that indefinite sentences, currently being served by more than 6,000 prisoners, will be reserved for only the most serious of offenders.
Payment by results will also be piloted along with proposals to involve the private and voluntary sector in running unpaid work sentences for offenders.
Justice Secretary Kenneth Clarke has said the Government is planning "extremely serious changes" to sentencing.
"The biggest thing that we're addressing in the current system, where we have an enormous prison population, sentences have got much longer than they used to and all the rest of it, is the rate of reoffending," he said.
Three in four criminals offend again within nine years and 40% commit another offence within 12 months, the latest figures show.
Pilot projects, such as the heron wing at Feltham young offenders institution in south-west London, are already helping 15 to 17-year-olds to turn their lives around.
Policing and Criminal Justice Minister Nick Herbert said charitable groups were brought in to help the offenders get into education, training or employment.
Some are paid by results, with cash payments made if the young person starts education or work, fulfils probation demands and stays out of trouble.