Gordon Brown has vetoed a 37.5 per cent pay rise for prisoners who carry out work while behind bars.

The prime minister overruled the Prison Service Management Board after learning it planned to increase the minimum rate for employed offenders from £4 a week to £5.50.

Brown told BBC Radio 4's Today programme he only became aware of the increase when it was posted on the board's website.

As soon as he heard of the proposal on Tuesday, he said, he intervened to block it before it came into effect on Thursday.

He said: "We are now debating a contract with prisoners so that there's better behaviour, and so that there are rewards if there is drug treatment and if it works.

"I think any debate about what prisoners receive in pay should be part of that new contract," he added.

Although inmates are not paid in cash for working in prisons, they are given credits that can then be used to purchase items.

The pay rise, which was ordered by deputy director general of the Prison Service Michael Spurr, would have been the first since the mid-1990s.

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 However, the issue had not been resolved and the PSI [instruction] has now been withdrawn."

He continued: "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."