Private companies will be banned by a Labour government from running services that deal with vulnerable people and their rights, under a far-reaching plan to restrict outsourcing.

The party has drawn up the plan in response to what it describes as a series of “outsourcing disasters” involving services handed to private firms – from testing for sickness benefits to the operation of some NHS cancer services.

Under the plan, contracts that deal with people deemed to be “at risk”, and contracts that infringe on human rights or entail the use of “coercive powers” can not be outsourced. People “at risk” are defined as those who rely on state protection, be they prisoners, hospital patients or benefits recipients. The new rules would kick in when current service contracts expire or are terminated.

Exceptions will be built into the system. The new rules will not apply to contracts of less than a certain value, or where it can be shown that “at risk” people are best served by an existing private contractor. State bodies will be able to argue that they do not yet have the capacity to carry out the service.

The plan comes after a series of high-profile outsourcing rows. The Labour leader, Jeremy Corbyn, has criticised the privatisation of cancer-scanning services in Oxford, with doctors warning that this could damage patients’ health. The private company InHealth has been given a contract to deliver positron emission computerised tomography (PET-CT) scanning in the Thames Valley. The service was taken away from the NHS trust’s Churchill hospital in Oxford.

The plan is likely to be backed by unions, but could cause concern in councils under financial pressure after years of cuts.

Last summer, the Ministry of Justice was forced to take control of Birmingham prison from the contractor G4S, after inspections found that prisoners were regularly using drink, drugs and violence, and corridors were littered with cockroaches, blood and vomit.

The party has repeatedly criticised the outsourcing of assessments for Personal Independent Payments and for Employment and Support Allowance, saying that this has led to a breakdown in trust between disabled people and their health assessors.

Both central and local government would have to follow new statutory guidance under the plan, which would see a major increase in the services run in-house by councils and Whitehall departments.

Andrew Gwynne MP, the shadow communities secretary, said that the public had “paid the price for outsourcing”.

“The Tories’ dogmatic commitment to markets at all costs has delivered sub-standard services at inflated prices,” he said. “And when they fail, as they often do, it’s the taxpayer who picks up the bill. Labour is proposing a radical new settlement that gives people the power to end outsourcing and decide for themselves how best to deliver the services they need.

“For too long this country has been run by, and in the interests of, a few who are all in it together. It’s time to bring democracy and accountability back to government, and put power in the hands of the many.”

The plan is likely to be backed by unions, but could cause concern in councils already under financial pressure after years of cuts. The plan is part of a wider Labour strategy to return services to public hands. It marks an attempt by Labour to show that it is serious about implementing major changes to the economy, while gaining distance from party splits on Brexit.