The public National Probation Service (NPS) will take over management of low and medium-risk cases, which are currently handled by private providers.
Under the existing system, high-risk individuals are supervised by the NPS, with all other work assigned to community rehabilitation companies (CRCs).
Changes to be unveiled by Justice Secretary David Gauke will see all offender management brought under the NPS after CRC contracts end in December 2020.
Under the new model, the Government will provide up to £280 million a year for probation “interventions” from the private and voluntary sectors.
Each NPS region will have a dedicated “innovation partner” responsible for providing unpaid work and accredited programmes.
Mr Gauke said: “Delivering a stronger probation system, which commands the confidence of the courts and better protects the public, is a pillar of our reforms to focus on rehabilitation and cut reoffending.
“I want a smarter justice system that reduces repeat crime by providing robust community alternatives to ineffective short prison sentences – supporting offenders to turn away from crime for good.
“The model we are announcing today will harness the skills of private and voluntary providers and draw on the expertise of the NPS to boost rehabilitation, improve standards and ultimately increase public safety.”
Probation services manage more than a quarter of a million offenders in England and Wales, including inmates preparing to leave jail, ex-prisoners living in the community and people serving community or suspended sentences.
Under a programme known as Transforming Rehabilitation, 35 probation trusts were replaced in 2014 by the NPS and 21 privately-owned CRCs.
The overhaul, introduced under then justice secretary Chris Grayling, was designed to drive down re-offending.
But it has been heavily criticised by MPs and watchdogs.
Earlier this month, the Public Accounts Committee accused the Ministry of Justice (MoJ) of taking “unacceptable” risks with taxpayers’ money when rushing through the shake-up at “breakneck speed”.
An inspection report previously revealed thousands of offenders were being managed by a brief phone call once every six weeks.
Chief inspector of probation Dame Glenys Stacey, who earlier this year described the model delivered by Transforming Rehabilitation as “irredeemably flawed”, said she was “delighted” at Mr Gauke’s decision.
She said: “Probation is a complex social service and it has proved well-nigh impossible to reduce it to a set of contractual requirements.”
Shadow justice secretary Richard Burgon said the Tories “have been forced to face reality and accept their probation model is irredeemably broken”.
He added: “The Tories didn’t want to make this U-turn and had been desperately trying to re-tender probation contracts to the private sector. It is right those plans have been dropped and that offender management is to be brought back in-house.”
Unison national officer for probation Ben Priestley described the move as “a long-overdue step in the right direction”, adding that the union is “convinced probation services are best delivered locally, rather than from the one-size-fits-all centralised model which is the National Probation Service”.
Speaking on behalf of Interserve, MTC, Seetec and Sodexo – companies responsible for 17 CRCs – CEO for Sodexo Justice Services in the UK and Ireland Janine McDowell said: “We are disappointed by this decision.
“As well as increasing cost and risk, this more fragmented system will cause confusion as offenders are passed between various organisations for different parts of their sentence.
“We will now work closely with the Government to minimise risks as the cases we manage are transferred to the National Probation Service.
“The Government has recognised our track record of innovative, evidence-based initiatives to tackle knife crime, stalking and alcohol-related offences and we remain committed to working with them to drive down re-offending.”
The MoJ said the reforms announced on Thursday are designed to build on the “successful elements” of the existing system, which led to 40,000 additional offenders being supervised every year.
The ministry will now run a period of “market and stakeholder engagement” to finalise the proposals in order for the new model to come into effect in spring 2021.
Offender management in Wales will be integrated on a quicker timescale, by the end of this year.