During the Conservative party conference both the Prime Minister and Justice Secretary outlined ways to change the system.
David Cameron said Britain must leave behind the "lock-em-up or let-em-out debate" on prisons and get "smart" on the best way to deal with criminals.
The Prime Minister backed the "great Conservative reformer" Michael Gove, the Justice Secretary, to overhaul Britain's prisons.
He told activists at the Conservative Party conference in Manchester that he believed prison was the appropriate punishment for serious crimes.
But he reflected: "The system is still not working. Half of criminals offend within a year of being released.
"Nearly half go into prison with no qualifications; many come out with none either.
"And all the problems that may have led them to that life - drug addiction, mental health problems, childhood abuse - remain unchanged."
Bishop for Prisons Rt Revd Richard Moth said: "It is extremely encouraging to hear the Prime Minister and Justice Secretary placing such a strong emphasis on the need to make our prisons places of rehabilitation, reform and redemption.
"Prisons are an integral part of our criminal justice system, but far too many men and women spend whole days locked in their cells without anywhere near enough access to education, training, chaplaincy, restorative justice programmes or the other opportunities necessary to turn their lives around.
"I am in no doubt about the scale of challenges facing us but am looking forward to working with the government as together we seek to improve our prisons for the common good of all our society."
Mr Cameron also said wider work with troubled families would seek to head people off from heading into trouble in the first place.
He said the "root causes of poverty" were found in "homes where no-one works, children growing up in chaos; addiction, mental health problems, abuse, family breakdown".
The Prime Minister said getting adults into work was a big factor in turning around troubled families.
But promising further reform to the care system, he added: "Children in care are today almost guaranteed to live in poverty - 84% leave school without five good GCSEs, 70% of prostitutes were once in care.
"And tragically, care leavers are four times more likely to commit suicide than anyone else. These children are in our care. We, the state, are their parents - and what are we setting them up for?
"The dole, the streets, an early grave?
"I tell you: this shames our country and we will put it right."