Prisons are set to hold near-record levels of inmates for the next six years because of the Government's U-turn on sentencing reforms, Whitehall's spending watchdog has warned.
The National Audit Office blamed a decision to ditch plans which would have seen sentences halved for offenders who gave early guilty pleas.
The move will deny the taxpayer £130m of potential savings and lead to more than 4,000 extra people in prison in 2015, according to the watchdog.
The National Offender Management Service (Noms) has been left "scrambling to find savings elsewhere", said Margaret Hodge, chairwoman of the Commons Committee of Public Accounts (Pac).
Some 86,000 people were in prison in England and Wales in June, compared with the all-time high of 88,179 in December last year, Prison Service figures show.
The Government's original sentencing reforms were designed to give the Ministry of Justice (MoJ) greater influence over what it described as "the unsustainable rise in the prison population".
It was predicted the reforms would lead to at least 6,000 fewer prisoners in custody for 2015, but dropping the proposed 50% discount for early guilty pleas in June last year following an outcry over soft sentencing means that fall will be reduced to about 2,000, the NAO said.
Potential savings were also cut, from £324m to £190m, with £105m of this planned between 2013-14 and 2014-15, the MoJ told the watchdog.
Ms Hodge added: "The agency's fragile financial outlook is at the mercy of events, such as last August's riots, and sentencing decisions of judges and magistrates over which it has little control.
"Even the slightest changes in the prison population can lead to the agency's plans being further knocked off course."
The NAO report said that given the limited reforms, "the department expects the medium projection for the prison population to remain largely stable for the next six years".
It went on: "Given the delays in making savings by closing prisons, the agency's 2012-13 savings target of £246m is more challenging."
Ms Hodge said she was "concerned" after learning Noms was less than halfway through its cost-cutting plans, and was lagging behind in its efforts to curb spending by £884m before early 2015 - a task made "even more difficult" by the move to limit reforms.
Amyas Morse, head of the NAO, said Noms' spending was vulnerable to "even slight changes in demand, over which it has no control", adding: "There are therefore risks to the agency's ability to make sustainable savings over the long term, when the prison population is unlikely to fall significantly and the agency's funding will continue to reduce."
