With a different approach to employment, the government could give former prisoners a better chance of succeeding in the outside world—and save millions at the same time

If you think business is tough at the moment, spare a thought for a group of people who find business really tough: former prisoners. On release from prison, they go straight to the back of most employers' recruiting queues. Banks will not give them loans to start their own businesses and no one will insure them. Perhaps it is not surprising that 65 per cent of former prisoners are reconvicted within two years of release. This is a huge waste, since there is some great, if often greatly misapplied, talent in Britain's jails today.

To some, a system with a 65 per cent failure rate is a problem. But when you discover that each released offender who re-offends costs the taxpayer at least £50,000, most businesspeople can see an opportunity to improve performance and save money with some smart investment and management.

The government response to this opportunity was to create NOMS (National Offender Management Service) in 2004. It has all the mock-management speak you might expect and fear: "end-to-end offender management", "reducing re-offending pathways", a "cross-departmental strategy" to "engineer a fundamental transition from offender to citizen". This is coupled with spending (sorry, "investment") of £2.6bn since 2004 and the inevitable £150m computer system that is running over budget and below target.

The result of all this talk and spending is that we can expect each released prisoner to commit, on average, more than two offences each within one year of release. At this point, a sensible business would see the need to do something different and better. Business knows that spending is not a substitute for insight. The big insight for the government should be that it gives no support for enterprising prisoners to start up their own businesses. The government is fixated with employment, not self-employment.

The voluntary sector may not have money, but it does often have insight. One organisation, Start-up (www.startuponline.org.uk), has shown it can get offenders into self-employment at a low cost, with only a 5 per cent re-offending rate. At scale, a scheme like this could save the government more than £50m annually. Inevitably, that has been lost amid the bureaucratic and ministerial confusion over who does what: the Justice Department, the Department for Innovation, Universities and Skills, the Department for Work and Pensions, multiple quangos and the Treasury. Departments with money to spend prefer to spend it, rather than save it.

Seeing the ex-offenders start businesses ranging from wig making to web design to Buddy Holly tribute acts makes you think they might be better at running NOMS than the civil servants.