Better electronic tagging of criminals could have saved £800 million over the past decade, according to a think tank that has condemned the current system as out of date and inflexible.

Had ministers let probation officers monitor offenders rather than paying private firms, the money saved could have been used to recruit an extra 1,200 police officers, Policy Exchange said.

Its report claimed that the system used in England and Wales has changed little since 1989, with people serving community sentences or the last few months of jail terms having to wear ankle bracelets linked wirelessly to boxes in their homes, where they are kept under night curfew.

That still leaves some prolific offenders free to go out and commit crimes during daylight hours, without the authorities knowing where they are.

Policy Exchange proposes that the new contract to be signed by the Ministry of Justice and one or two private firms to run tagging schemes, worth as much as £3 billion, should be torn up in favour of more competition.

The think tank also wants GPS tags to be used in future so that offenders can be followed 24 hours a day, enabling police to map their movements against reported crimes, or plot their locations in real time when responding to 999 calls to see if they were at the scene.

Under the proposed expansion of the scheme, the numbers being tagged could rise from 25,000 to 140,000 with suspects on bail, criminals given suspended sentences, and sex offenders included.

Policy Exchange said £963million had been spent on electronic monitoring over the past 13 years but criminal justice experts had not been allowed to help develop the service, with Serco and G4S enjoying a virtual monopoly.

It calculated that the core service works out at £13.14 a day in England and Wales, compared with £1.22 in the US. If the Government had followed the American model of letting local offender management teams carry out supervision, with private firms only providing hardware, as much as £883million could have been saved.

Policy Exchange said its surveys suggested as many as one in four police forces thinks the current regime is ineffective, with some officers calling it "expensive" and "unreliable".

Rory Geoghegan, the report's author, said: "As technology becomes ever more sophisticated our badly designed procurement system is preventing the police from preventing and detecting crime."