David Cameron has outlined what he called the coalition’s ‘tough but intelligent’ approach to crime, with payment by results for companies and charities providing rehabilitation services.

In a well-trailed speech at the Centre for Social Justice thinktank in London, the prime minister said ‘retribution’ and tough sentences for serious offenders were necessary, but that rehabilitation was key to prevent people reoffending.

He said: ‘Retribution is not a dirty word. It is important to society that revulsion against crime is properly recognised.’

But the prime minister said that as well as being tough, the underlying reasons why many offend also need to be addressed.

‘Recognising this isn't soft or liberal, it's common sense. Prevention is the cheapest and most effective way to deal with crime. Everything else is simply picking up the pieces of failure that has gone before,’ he said.

Cameron announced that rehabilitation programmes will be offered to offenders who have been jailed for less than a year and who are currently ineligible for them.

Carrying on his former justice secretary Kenneth Clarke’s themes, Cameron said: ‘Today, rehab just goes to those who have been inside for a year or more. But that misses all those who go in for shorter sentences yet reoffend time and time again. So I want to look at making them part of the rehabilitation revolution too.’

To reduce the number of repeat offenders, Cameron said he wants to extend the involvement of charities and private companies providing rehabilitation services, paying them on the success that they have.

He said that by 2015 he wanted to see payment by results ‘spread right across rehabilitation’.

But Labour’s shadow justice secretary Sadiq Khan MP dismissed the speech, saying that it shows that after 29 months in government, the coalition’s justice policy is ‘in tatters’.

He said: ‘Today's announcement, which includes little that is new, is not about what works to keep communities safe. Instead, this is empty rhetoric from a weak prime minister who is pandering to the backbenchers.’

Khan added: ‘There's nothing tough or intelligent about taking 7,000 police officers off the beat or cutting the use of CCTV to deter crime and catch criminals.’