Four inmates, who earned up to pounds 130-a-week working on day-release jobs, sought a judicial review to challenge the policy of taking pounds 18.25-a-week from the money they earned to pay for their cell and food. The Prison Service was forced to climb down yesterday after its own legal advisors decided that it was unlawful to charge someone for their own imprisonment.
The decision means that thousands of prisoners who have made payments for board and lodging over the last six years will now be able to claim the money back. Many of them will have been released.
The Prison Service has recouped around pounds 26,000-a-month through such deductions and the repayments are likely to cost more than pounds 1m.
Prisoners nearing the end of their sentence are encouraged to take part in "enhanced earning" schemes which enable them to work - usually outside of prison - and earn realistic wages. The programmes are designed to help rehabilitate prisoners into the community.
Michael Howard, the previous home secretary, introduced the deductions in the belief that it was right that inmates who were allowed the privilege of earning wages should make a contribution for their upkeep.
But the policy was challenged by four inmates from Whitemoor prison, near March in Cambridgeshire. John Duggan, serving life for murder, and three other prisoners, Glen McPherson, George Daly and Craig Preece, argued that the policy was unlawful.
Following legal advice, Peter Dawson, acting director of regimes for the Prison Service, has instructed all governors to stop deducting the money. In a memo Mr Dawson writes: "In the light of legal advice that the decisions were unlawful (because prisoners cannot be required to pay for their own imprisonment, and cannot consent to pay for their own imprisonment) the Prison Service has conceded the cases. Prisons must now cease making deductions for board and lodging from the wages of prisoners, whether working on enhanced wages schemes in prison or outside prison on pre-release schemes."
Mark Leech, of Liverpool-solicitors AS Law, who backed the prisoners' claims, said: "Prisoners will now be able to save for their release and be in a much better position to survive financially when they do get out."
The Prison Service said that it would now bring into place the Prisoners' Earnings Act 1996, placed on the statute book by the last government but never implemented. It will be introduced early in the summer and will enable the Prison Service to lawfully make compulsory deductions.