The number of prisoners earning money from prison work should be trebled by the end of the decade, according to Liberal Democrat home affairs spokesman Nick Clegg.
He proposes putting 20 per cent of their earnings into a victim compensation fund, and paying another proportion to offenders two years after their release.
This would, Clegg said, encourage them to "remain straight". Prisoners earn an average of £8 a week for work such as cleaning, which is generally used for things like toiletries or tobacco.
Clegg puts forward the proposals in a new book published by the Institute for Public Policy Research, called 'Beyond liberty: Is the future of liberalism progressive?'.
He argues the government's record on law and order should be judged by reoffending rates, which are "among the highest in the western world".
And he also backs the use of community justice panels to tackle anti-social behaviour.
"Reoffending rates are arguably the most reliable gauge of the efficacy of a criminal justice system," he writes.
"Put simply, if criminals who come into contact with a criminal justice system are not turned away from further crime, the system is failing."
He goes on: "There is nothing 'soft' or indulgent in engaging with prisoners to minimise the chances that they reoffend upon release: it is fulfilling one of the basic functions of a prison system, ensuring that offenders do not leave yet more victims in their wake."
He said there was no evidence that areas where the most Asbos have been issued, such as Manchester and Camden in London, had found a more "sustainable answer" to anti-social behaviour.
"Another powerful tool against anti-social behaviour is the model of community justice panels," he said.
"This model requires the offender to explain him/herself to the victim and a panel of members of the public.
"Together, they decide how the offender should make amends, paying back the offence he/she caused in the community.
"Early results suggest enormous potential, with reoffending rates as low as five per cent."
The book, which also features contributions from Lib Dem MPs including Vince Cable and David Laws, will be launched at the party's spring conference.
