Lord Prescott has attacked the “exploitation” of unemployed young people encouraged to take on unpaid voluntary work in the hope of getting a permanent job.
The former deputy prime minister hit out at “mafia-like” contracts where young people were effectively offered work they cannot refuse.
A “massive pool of cheap labour is going to be exploited”, he said, suggesting that this extended to fire marshalling work during the London Olympics.
Lord Prescott spoke out in a Lords debate on the voluntary sector and social enterprises after a row erupted earlier this month over claims that jobseekers were bussed into London to work as unpaid stewards for the Diamond Jubilee celebrations.
At the time the Labour peer demanded a government investigation into reports that they were left stranded in the night and forced to sleep in the cold under London Bridge.
He now told peers that “dangers” were beginning to develop, with voluntary labour being brought into the commercial sector, governed by contract.
There were “real problems” with a big pool of people being asked to do so-called voluntary work under mandatory government schemes.
“It's all about contracts and sub-contract work. It's no longer coming along and working voluntarily in the community.”
For many young people, “it's almost like the mafia-kind of contract: I'm going to offer you a contract you can't refuse”.
Lord Prescott said: “If more and more people are put into this situation, and you are hoping to get from welfare to work, we shouldn't just exploit this situation by saying it is unpaid.”
Big companies were getting millions of pounds to get young people into work, and the motivation becomes profit rather than public service.
He said unemployed people were now to be offered the job of fire marshals at the Olympics, adding: “I get worried about that.”
Opening the debate, Liberal Democrat Baroness Scott of Needham Market urged ministers to "nurture" the "enormous contribution" made by the voluntary sector and social enterprises.
Every year more than 20 million people across the UK volunteer for work covering millions of hours and equivalent to £40 billion to the economy, she said.
Lady Scott also raised concerns about making voluntary work a conditional part of receiving benefits, insisting: "The idea of enforced volunteering is anathema to most of the voluntary sector."
Baroness Byford (C) said that even before the current period of austerity, the sector had been facing difficulties with not enough new young volunteers coming forward to replace those leaving.
But she said the Diamond Jubilee celebrations had shown young people how "uplifting" the work could be and urged ministers to tackle "stumbling blocks" to volunteering, like CRB checks.