The prison population will fall by around 3,000 over the next four years as the Ministry of Justice cuts its budget to £7.3 billion, the Treasury predicted today.
"Radical change" will see the department's resource budget cut by 23%, capital spending cut by 50% and its administration budget cut by a third as the MoJ makes average savings of 6% per year.
A total of £350 million will be cut from the legal aid budget, which will involve "taking tough choices about the types of case that should receive public funding, and focusing support on those who need it most", the Treasury said.
Plans for a new, privately-run 1,500-place prison in Runwell, Essex, will be deferred.
Justice Secretary Ken Clarke said: "We need to create a justice system that punishes the guilty, reduces reoffending, protects our liberties, and helps those most in need.
"Over the period of this spending settlement the Ministry of Justice will be transformed into a lean, transparent, and affordable department."