Lord Prescott has accused the government of "exploiting cheap labour" and presiding over the development of labour camps following revelations that unpaid jobseekers on the government's work programme were asked by a security firm to sleep under London bridge before stewarding the Queen's diamond jubilee celebrations over the weekend.

The former deputy prime minister has written to the home secretary after becoming "deeply concerned" by revelations in the Guardian about the treatment of up to 30 jobseekers and another 50 people on apprentice wages who were taken to London by coach from Bristol, Bath and Plymouth on Saturday before the pageant on Sunday as part of the government's work programme.

Two jobseekers, who did not want to be identified in case they lost their benefits, later told the Guardian that they had to camp under London bridge overnight, to change into security gear in public, had no access to toilets for 24 hours, and were taken to a swampy campsite outside London after working a 14-hour shift in the pouring rain on the banks of the Thames on Sunday.

The firm, Close Protection UK (CPUK), has issued "sincere apologies" for what it called the "London bridge incident", but insisted that the poor conditions reported had been exaggerated.

But Prescott said the "very bad incident" raised "many questions about the use of unpaid labour". Prescott, who is running to be the elected police and crime commissioner for the Humberside police force area, called on Theresa May to investigate whether the company had broken the security industry's own employment standards and is urging the government to review the company's contract for the Olympics.

In the letter, Prescott said the situation raised "very serious questions" about the "suitability of using private security contractors to do frontline policing instead of trained police officers" and that the company had shown a "blatant disregard for the care of its workers".

"It's not only unacceptable," Prescott told BBC Radio 4's Today programme, "it's a breach of the responsibility of the company under the security kind of agreements in the industry to have some proper regard for their employees. Not only was it under the bridge, but they were then sent to a camp which they described as 'swampy and wet' after this event, almost becoming a development of labour camps. Is this going to be the circumstances for the Olympic sites?

He went on to say that it showed "complete disregard for the social conditions of cheap labour".

Prescott said: "Is this the Olympic model? This company has bid for the contract at the Olympics, at which they will be paid £8.45, because it's the minimum wage but which conditions will they be paying for? How will they be sleeping? Who is responsible? This government that exploits cheap labour."

Prescott also said the charity Tomorrow's People, which set up the placements at CPUK under the work programme, had a responsibility.

"They can't just palm it on to Close Protection. They have a responsibility to the young people they are bringing forward are properly cared for."

Molly Prince, managing director of Close Protection UK, said errors had been made but insisted the conditions reported had been exaggerated.

"The whole situation has been exaggerated and we're talking about two or three people complaining out of 220 staff that were supplied to the event," she told Today. "It was badly handled and for that we've extensively apologised. We're not in the business of exploiting free labour."

The company has already stated that those who were unpaid did not want to be paid because they wanted to get the work experience.

Prince said there had been a "logistics error" which saw some unpaid employees left under London bridge and implied that she intended to deal with an employee who was on the coach with the workers. She denied a suggestion made by Prescott that the member of staff concerned was a director.

"They should have been left on the coach until the director arrived on site with the other staff members," she said.

Prince said staff were supposed to change into their work clothes on the coach, saying: "It is the nature of event work." But she said staff had been forced to change on the streets of London because the clothes and equipment were not actually on the coach but on separate minibuses.

On the issue of the campsite, she denied that the accommodation provided was inadequate.

"There was dry sheltered accommodation and a couple of individuals wanted to erect their own tents on the site in the pouring rain which they were advised not to do by our operations director and they proceeded to attempt it," she told Today.

"Their objection was that the accommodation provided was communal but that was explained to everybody involved right from the beginning."

The company chief said lessons had been learned.

"There were some logistical mistakes made which I can assure everybody concerned will be rectified and will be learned from in readiness for the Olympics. In regards to the contracts that we have for the Olympics, there will only be employed labour used and they will be paid at the rate dictated by Locog and the event."

Abi Levitt, director of development services at Tomorrow's People, said: "At this point in time, we have been unable to verify the accuracy of the situation with either the people on work experience or the business concerned. However, we will undertake a review of the situation as matter of urgency. Tomorrow's People believes strongly in the value of work experience in helping people to build the skills, confidence and CV they need to get and keep a job and we have an exemplary record going back nearly 30 years for our work with the long-term unemployed."