A controversial plan to increase pay rates for prisoners while ministers are being deluged by the row over the 10p tax rate abolition was scrapped yesterday on the direct orders of Gordon Brown.

The Prime Minister intervened to overrule the Prison Service Management Board after learning that it had given the go-ahead to increasing the minimum pay rate for an employed offender from £4 a week to £5.50.

Though a tiny sum, it amounts to a 37.5 per cent rise at a time when Mr Brown is demanding restraint across the public sector. It would also cost several million pounds across the Prison Service, and Mr Brown insisted that the money could be better spent elsewhere, The Times has learnt. The increase would have taken effect from tomorrow. It would have caused new embarrassment to the Government only a few days after a prison officers’ leader suggested that life in prison was so comfortable that inmates were ignoring chances to escape.

Mr Brown has been savaged over the impact on the poor of his decision in his last Budget to scrap the 10p rate and has agreed to concessions to prevent a huge revolt of Labour MPs.

His move will be seen as a further sign of how the Government has been rocked by the dispute.

Mr Brown’s intervention will cause resentment in the prison service and embarrassment in the Justice Ministry. Although ministers did not approve the “instruction” issued by the service on Monday to increase pay, they had been involved in talks with officials about improving incentives to work.

David Hanson, the Prisons Minister, was involved but it appeared last night that Jack Straw, the Justice Secretary, had not been aware that the increase was about to introduced.

Officials in No 10 spotted the instruction on the Prison Service web-site and alerted Mr Brown, who demanded an explanation, and then vetoed it. The instruction was quietly withdrawn yesterday afternoon.

An increase of £1.50 for each pay rate for a prisoner was agreed by senior officials and a prison service instruction was issued by Michael Spurr, the deputy director-general, on Monday.

Under the instruction the minimum pay rate for an employed offender would rise from £4 a week to £5.50 – a rate of £1.10 a day; the unemployed rate from £2.50 to £4 a week; short-term sickness rate from £2.50 to £4 a week; long-term sickness and retirement from £3.25 to £4.75; maternity leave from £3.25 to £4.75 a week.

The Prison Service agreed to increase the rates because they had not changed since the mid1990s.

Prisoners receive pay for participating constructively in the jail regime but there is no payment for those refusing to take part. Earnings can be deducted for disciplinary reasons.

Prisoners are eligible for unemployment pay if they are willing to work but the jail cannot find suitable employment or the inmate is unable to work.

All pay rates are based on a five-day working week with prisoners attending ten morning and afternoon sessions.

Prisoners do not receive cash but their “earnings” are put against their name, allowing them to “purchase” items, including toiletries, cigarettes, stamps and phone cards from the prison canteen.

Inmates can supplement their spend account with private cash allowances of between £3.50 and £23 a week.

Prison canteens are supplied by Aramark, which offers a range of items, including a 425g can of Ambrosia rice at 68p, 12.5g of Golden Virginia tobacco at £2.83, 250g Lynx shower gel at £2.23, 500mg McVitie’s chocolate digestive biscuits at £1 and a packet of four Mach 3 razor blades at £5.51.

Prisoners get paid for work in jails. Those who are allowed to work outside or released on temporary licence are not “normally entitled” to earnings for the time they are out of prison.

The proposed increase in pay rates would also have raised the private cash allowances for convicted inmates by between £4 and £25.50 depending on their regime.

A Ministry of Justice spokesman said: “The Prison Service has been in discussions with ministers on this issue. However, the issue had not been resolved and the PSI [instruction] has now been withdrawn.”

The spokesman added: “Prisoner pay rates for work and education have not increased since the mid-nineties. The issue as to whether pay rates should be increased is now being reviewed as part of David Hanson’s proposals for a new compact, balancing the opportunities we give to offenders to turn away from a life of crime with what the community is going to expect of them in return.

“That means meeting certain standards of behaviour while in prison and on release, for instance getting off and staying off drugs.”

A jail source said: “The Prime Minister is making the life of officials in a number of departments difficult at the moment. He cannot stop micromanaging everything.”

— Convicted prisoners cannot run a business or trade in stocks and shares while in jail

— Cannot retain cash

— Cannot use credit cards

— Cannot apply for loans

— Cannot take part in the lottery or pools

— Can buy from Argos catalogue

— Can make contributions to private pension scheme

— Can open Isa account

— Benefits, including state pensions, are stopped on entry to jail

—Prisoners earning market wages may be subject to tax and national insurance contributions

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