The public is to be offered the chance to own shares in new prisons as part of John Reid’s attempt to fund an emergency jail building programme to tackle prison overcrowding. Home Office officials are considering the unique initiative of giving the public an opportunity to invest in jails after Gordon Brown refused to fund a huge expansion of the prison estate.

Members of the public would receive a regular income from the “invest in a cell” scheme and would benefit from a rise in the value of their investment because of increasing property prices.

Under the proposals new jails, providing up to 4,000 cells, would be financed through real estate investment trusts (REIT), which allow small investors to put money into the residential and commercial property market.

The Home Office is planning to build three 1,300-cell jails and create 4,000 new spaces in ready-to-use units that will be erected in existing prisons.

Mr Reid needs the new jail spaces because of a surge that has taken the total number of prisoners in England and Wales to more than 80,000 for the first time.

Yesterday it was disclosed that 85 of the 139 jails in England and Wales were overcrowded at the end of October.

Under the funding plan, disclosed in the latest issue of Building magazine, a new jail would be built by a trust and the Government would pay the trust an annual rent for housing offenders in the prisons.

The cash paid by the Home Office for using the jail would be paid to the trust, which would then pay regular dividends to the investors.

The basic rate of income tax of 22 per cent would be deducted at source and higher-rate taxpayers would have to pay a further 18 per cent, but investors would be able to reclaim the tax if they invested through a pension or an Isa.

For small investors there would also be the advantage that there is no minimum investment level in the trusts and dividends are paid irrespective of how the shares perform.

Last night opposition politicians and penal reform groups said that the idea was a measure of the desperation facing a Government that had run out of prison places.

Harry Fletcher, assistant general secretary of the National Association of Probation Officers, asked what safeguards would be introduced to prevent organised criminals investing in the prisons.

“What perks will shareholders get should they find themselves incarcerated in one of the prisons at a later date?”

He added: “This is a desperate measure. The Treasury refused to finance new jails by conventional means so Mr Reid is having to go to this length to find a way of getting the new spaces.”

David Davis, the Shadow Home Secretary, said that the proposal was a consequence of the Government’s failure to address the lack of capacity in the prison system.

“The Home Office has actually seen its budget frozen. As a result we see John Reid reduced to begging the public to stump up even more of their cash to pay to deal with Labour’s failure.”

Mr Reid’s Home Office budget has been frozen for the next three years, causing a serious cash crisis in the department.

He has scrapped the introduction of a non-emergency 101 number for the public and abandoned Labour’s general election pledge to have 24,000 police comunity support officers by April 2008.

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