Moves to cut the jail population were in jeopardy last night following an overhaul of sentencing policy – potentially leaving a financial black hole at the heart of the prison system.
David Cameron overruled Justice Secretary Kenneth Clarke's controversial plans to offer sentence discounts of up to 50 per cent to offenders who plead guilty early, and set out a series of initiatives designed to rebuild the Conservative Party's credentials on law and order.
They included new offences for knife crime and squatting, as well as longer sentences for the most serious criminals.
Mr Clarke's original ambition was to trim numbers in prison in England and Wales by 3,000 as part of a drive to cut spending by the Ministry of Justice (MoJ) by £2bn.
But critics warned that the package of measures set out by the Prime Minister could only increase the upwards pressure on prison numbers.
Mr Cameron took personal charge of the sentencing policy in response to an outcry from Conservative MPs and Tory-supporting tabloids over plans to raise the maximum sentence discount from 33 per cent to 50 per cent.
In a major policy U-turn, the Prime Minister confirmed he had vetoed the proposal because it would have sent out the "wrong message" to the public.
He said the £130m lost as a result of the retreat would have to be recouped from the MoJ's budget.
Mr Cameron also set out plans for:
* An offence of "aggravated knife carrying" with an automatic jail term for anyone who uses a blade to intimidate or threaten.
* New laws against squatting.
* More mandatory life sentences for the most serious criminals and cutting the entitlement to probation for sexual and violent offenders.
* An end to the system of indeterminate prison sentences, with the intention of producing longer sentences.
Mr Cameron said: "The public need to know that dangerous criminals will be locked up for a very long time. I am determined they will be."
He shrugged off criticism of the rethink on sentencing discounts, insisting it was a sign of "strength and confidence" that the Coalition was prepared to listen and change its mind.
The Prime Minister pledged a shake-up of measures to tackle reoffending, including making prisoners work up to 40 hours a week, getting more offenders off drugs and designing "tougher, properly enforced community punishments".
The prison population could be reduced by deporting foreign national prisoners, keeping mentally ill offenders out of jail and reducing numbers of people remanded in custody.
But penal reformers warned that the impact of those measures could be outweighed by the fresh moves on sentencing. They also raised concerns over whether there were adequate resources to pay for the Government's promises on rehabilitation.
Frances Crook, director of the Howard League for Penal Reform, said: "What constitutes using a knife to threaten will have to be very tightly defined to avoid prison numbers spiralling out of control."
She added that the sentence discount U-turn left the MoJ with a "severe headache in trying to balance its books". She said: "If further cuts are made to the probation service then prison numbers will inevitably rise."
Juliet Lyon, director of the Prison Reform Trust, said she was alarmed by the Government's "tough-sounding political rhetoric" and warned against expecting an "already beleaguered prison service" to do even more with even less.
Mr Clarke also confirmed plans for heavy cuts in the legal aid bill. He told MPs it would no longer be available for "most private family law cases, clinical negligence, employment, immigration, some debt and housing issues, some education cases and welfare benefits".
The civil rights group Liberty said the moves will put publicly funded legal advice and representation "beyond the reach of vast swathes of the British population".