John Kampfner meets the man in charge of prisons

"I read the other day," said Martin Narey, "that Finland has three children in prison; that's three.

It might seem strange to think of the man who has run the prison service over the past six years as a victim. Martin Narey is worried about the inexorable rise in the number of people locked up, but insists he has little power to change it.

This is a story about statistics and about false economies. Some 85 of our prisons are officially described as overcrowded. Prisoner numbers are now above 75,000. That is a rise of 20 per cent under this Labour government. The Home Office predicts that the overall number could rise to 110,000 by 2010. No other European country comes close. The Americans are market leaders, but as ever we are following dutifully behind.

I put these points to Narey and he is keen to agree. He provides more data to back up the argument: "We lock up twice as many black men in England and Wales as there are in university." Ten years ago, there were 129 people sent to jail for shoplifting. Today, we have 1,400. If you are a shoplifter, your chances of being sent to custody by a magistrates' court is seven times greater today than it was then. In 2001, some 3,000 people were sent to prison for petty theft as a first-time offence. "I'm talking about things like theft of a bicycle; 3,000 people who had never offended before."

He turns to juveniles. "We're a much bigger country than Finland, but I read the other day that Finland has three children in prison, that's three; we have 2,900." We talk about our propensity to lock up women. Cherie Blair spoke at a recent conference of the Prison Reform Trust about the "tragedy of wasted lives", of so many mothers being separated from their children, often for comparatively minor offences. In 1994, the average number of women in prison in the UK was roughly 1,800. At the latest count, it was more than 4,500. Narey agrees with Cherie Blair, adding that 40 per cent of women going into prison have previously tried suicide. "The big issue is whether they should be there at all."

On every count, we are setting new records - with children, women, lifers, long-termers, short-termers. "I don't bring anyone to prison, I don't go and stand on street corners and advertise, but we have to deal with whatever is sent to us, despite the fact that [the prisons are] sometimes overwhelmed," Narey tells me.

Spending a day with Narey - it happened to be the day when Maxine Carr was freed from jail into perpetual fear of the lynch mob - I was struck by the prison chief's candour about the crisis. He sprays words such as "horrifying", "scary" and "terrible" when discussing the nature of a society that incarcerates so many of its citizens. So who is responsible for this sorry state of affairs? "I think judges and magistrates get a hard time from the media. They are frequently castigated for using community penalties for offences or for using shorter prison sentences," he says. "There's almost an Anglo-Saxon thing about liking custody."

Judges, fearing being labelled as soft, have handed down more and longer prison sentences. Even David Blunkett, who has instructed courts to keep serious criminals in jail for longer, has latterly urged them to show greater discretion to lesser offenders and to make greater use of early-release tagging schemes. The economic damage rivals the social damage. With each prisoner costing £38,000 on average per year, Gordon Brown has told the Home Office that money is available for 80,000 places but no more.

Narey pins his remaining hopes on reducing reoffending rates. Here, too, the figures are dreadful. About 59 per cent of prisoners overall get into trouble within two years of their release. The recidivism rate among women is growing fastest - now up to 55 per cent. Narey stands by his promise that if he does not cut the numbers overall by 10 per cent, he will quit. At the heart of his plans is the merger, formally on 1 June but already up and running, of the prison and probation services into the National Offender Management Service (Noms). The idea is logical. But will Noms do more than tinker? For all his frustrations and professions of innocence, Narey has survived, even flourished, at the Home Office. His remit has broadened. In 1999, at the age of 43, he became the youngest head of HM Prison Service. While predecessors have quit early or been forced out, he has seen his remit broaden. In 2003, he was given the grander title of commissioner for correctional services. Now he will be the first chief executive of Noms.

He pins hopes for progress on Lord Woolf, whom he describes as a "fantastic man". The Lord Chief Justice and regular scourge of the government is presiding over the new Sentencing Guidelines Council that is seeking to give clearer guidance to judges and magistrates.

Woolf is scathing about the alliance of tabloid media, eager-to-please judges and eager-to-please ministers who want to send people to jail. In a lecture on 22 April, he pointed to findings by the government's own Social Exclusion Unit that reoffending costs at least £11bn a year. One-third of petty offenders lose their home while in custody. Two-fifths lose contact with their families. Two-thirds lose their jobs. About half of all prisoners have a level of reading skills lower than an 11-year-old's. "The inescapable conclusion is that unless there is a dramatic change in the way we deal with offenders, there is every likelihood of the position getting worse," Woolf warned. "The period of sentences of imprisonment actually being served now bears little relation to the sentences imposed."

Largely hidden from view are the small-scale programmes to deal with small-scale offenders. Although a few hours with Narey at a home for the disabled in Enfield can provide little more than a snapshot, the young men doing their allotted hours of community punishment orders seemed better off providing a service (digging up the garden and building trellises) than shooting up drugs in prison.

We talk about Maxine Carr. Narey was accused of pandering to the mob by refusing Carr's application in February for early release. He did so, he says, partly because her application at the time "would have eroded public confidence" in the scheme, and partly because the release plan that she had drawn up underestimated the danger to which she was exposing herself. He knows where she has been released to, but has ensured through an injunction that nobody can report it. "We shouldn't really have to protect somebody who's coming to the end of a prison sentence who has served her time," he says. "It depresses me that we have to make these sorts of arrangements."

Things, I suppose, could be worse. This could be the US. We know what the Americans get up to in their jails - at home and abroad. Narey tells me he went to a prison just outside Houston last year that was "terrifying". In one wing, prisoners were locked up the entire time. "There was a toilet in the cell, they weren't allowed a radio, they weren't allowed reading matter other than the Bible, they had nothing to do all day and they appeared to me, not surprisingly, to be hugely disturbed. I asked a guard what they did all day and he said: 'Well, they masturbate.'" Narey forgot to ask if they were tortured.

John Kampfner interviews Martin Narey in the first in his series of Who Runs Britain on BBC4 television on 1 June