Fewer offenders could be locked up in prison and more given community sentences under reforms of the criminal justice system being planned by the Government, Justice Secretary Kenneth Clarke is due to indicate.

In a speech, Mr Clarke will describe the 85,000 prison population in England and Wales as “astonishing” and question whether it delivers value for money for taxpayers.

Keeping a prisoner in jail costs an average £38,000 – more than sending a boy to Eton – but has too often proved “a costly and ineffectual approach that fails to turn criminals into law-abiding citizens”, Mr Clarke will say. In the worst prisons, jail sentences do no more than produce “tougher criminals” and introduce petty offenders to hardened felons.

The Government has committed to a full review of sentencing policy to ensure that it is deterring crime, protecting the public, punishing offenders and cutting reoffending.

Mr Clarke made clear that he wants it to deliver a system with a far greater emphasis on rehabilitation and what he termed “intelligent sentencing”.

“This means prisons that are places of punishment, but also of education, hard work and change,” he will say in his speech in London.

“It means rigorously enforced community sentences that punish offenders, but also get them off drugs and alcohol and into employment.”

He will spell out plans to hire voluntary and private sector organisations on a payment-by-results basis to reduce reoffending, with financial rewards for keeping released prisoners on the straight and narrow.

And he will say that he hopes the reforms will pay for themselves by reducing the costs of the criminal justice system.

Mr Clarke will indicate he favours a reduction in the use of short sentences, which make it “virtually impossible” to rehabilitate or train prisoners but often cost them their jobs, their homes and their families, making them more likely to reoffend. But he will insist that his “first priority” is public safety and protecting communities from truly dangerous criminals.