Offenders have been locked in an “expensive merry-go-round” by a key plank of Chris Grayling’s disastrous probation overhaul, which has failed to reduce reoffending, a watchdog has said.

Under his widely derided Transforming Rehabilitation programme, introduced in 2014, Grayling broadened the pool of offenders eligible for probation in England and Wales to include around 40,000 people sentenced to 12 months or less in prison.

In a report on supervision of short-term prisoners, Dame Glenys Stacey, the chief inspector of probation, said nearly two-thirds went on to reoffend, committing crime estimated to cost the economy £7bn-£10bn a year. Inspectors found the quality of post-release supervision for short-term prisoners was variable.

The Ministry of Justice (MoJ) last week announced that the supervision of all offenders in the community is to be undertaken by the state, in a major renationalisation. Grayling broke up the probation sector in 2014 into a public-sector organisation managing high-risk criminals and 21 private companies responsible for the supervision of 150,000 low- to medium-risk offenders.

Stacey said: “All under-probation supervision should be supervised to a good standard, of course, but intensive and holistic rehabilitative supervision will be required for this group to meet the government’s aims.

“In my view, a system-wide approach as well as much more purposeful probation supervision is needed.

“Without it, individuals are locked in an expensive merry-go-round of criminal justice processes and the public are left at undue risk.”

Prior to the change, which was designed to reduce reoffending, convicts who had served less than one year did not have to be supervised by probation services.

In the year to September, 38,617 offenders were released following sentences of less than 12 months.

But the inspection report found there had been “no tangible reduction” in reoffending.

It cited figures showing that 64.1% of adults released from custodial terms of less than 12 months reoffended within a year. This compared with 28.5% of those who served sentences of a year or more.

Inspectors assessed 128 cases involving individuals who had been given a custodial sentence of less than 12 months.

They were “shocked” to find pre-sentence reports had been completed in less than a quarter of inspected cases.

Stacey said it was a national problem, adding: “It is plainly unacceptable for magistrates and judges to sentence a person to custody without the benefit of essential information and advice on why they offended, their current circumstances and any alternative sentence options.”

Arguing that the existing “one size fits all” approach should be replaced by a more tailored system, the inspectorate called on the MoJ to consider developing a mechanism that could allow reporting requirements for those on post-sentence supervision to be suspended in cases where the services were not required.

The report also recommended that the MoJ should pilot alternatives to custody for short-term prisoners, including “supported accommodation”, mental health and substance-misuse treatment and the use of monitoring technology.