A call by justice secretary Kenneth Clarke to get prisoners to work 40 hour weeks has received the backing of one of the country's largest security companies, G4S, which said that re-offending rates could be cut significantly by introducing productive employment in jails.

However, proponents have a mountain to climb. Research by YouGov, commissioned by G4S, said that around 60% of small and medium-sized businesses were unaware of the working prisons initiative, and half said that they were not prepared to work with inmates.

This reluctance is denying companies the opportunity to access a cheap and motivated workforce and preventing prisoners from adding skills that will help them find work once they leave prison and reduce the risk of re-offending, G4S said.

Hedley Aylott founded Summit as a record company in 1995 to release the first single recorded in a UK prison. After five years of running music and arts programmes, Aylott decided to expand the company's offering into digital media, using inmates to staff the business.

"What we found was that there was some amazing talent locked away in prisons who are highly motivated, but when our projects came to an end there was no way for them to develop themselves," he said. "Our first office was inside the Wold Prison [in Yorkshire], it was our headquarters for the first six years of our life as a business. We started as a portacabin with two guys, then we took over the concrete gnome workshop."

Summit now employs 120 people in web design and online marketing, training prisoners to build websites and provide search engine optimisation. Its turnover is close to £30m and it has an international portfolio of clients.

Aylott is an evangelist for the potential of prison labour as a growth driver for small businesses, and said that the reason that schemes have failed to take off is a combination of a preconceived notion that inmates are only suitable for low-skilled work, and a lack of commercial acumen within the prison service.

"Prisons are run by people who run prisons, not businesses," he said. "They don't have a commercial bone in their body. They should stick at running prisons. What's lacking is proper commercial enterprise which can see the opportunity to employ talented and motivated individuals.

"If you just want teabags put in boxes or headphones put in little bags, then it doesn't really matter, does it. Prisons have just been pleased to get any work at all, but they haven't worked out how to step up and get high quality, high skilled businesses."

G4S said that prisoners who have obtained commercial skills and experience have dramatically lower reoffending rates - below 5% - compared to the national average of 50%.

"The general thing about prison, you usually do pointless courses that don't lead to anything. You'll do half a qualification that doesn't mean anything on the outside," 'Matt', a former inmate of the Wold prison and employee of Summit, said.

"I know people who have been in 10, 12, 15 times. By the end of the day they're reoffending. They've got nowhere to live, they've got no job, they've got no prospects. It's pretty sad really. It's the last taboo. You can't discriminate against people for anything other than a criminal record now. Obviously I understand that some offences are sensitive, but there's got to be something that's mutually beneficial for society as a whole."

The choice for taxpayers and businesses, Matt said, is straightforward: "Would you rather this person had a job or would you rather they were on the dole - which you're paying for - or be back in prison - which you're paying double for. To me it's common sense."

It is this argument that both Aylott and G4S' head of community services and interventions, Simon Newberry, level against accusations that such schemes could exacerbate the problems of joblessness at the base of an already tight labour market. More than 2.6m people are out of work in the UK, with Northern towns, including Hull, near to the Wold prison, suffering more than most.

"Yes, these [businesses] are providing significant advantages to the prisoners, and for every prisoner we can help go back into employment and away from re-offending, again, it has to be a very good thing for the British economy. The British economy is currently wasting £13bn per year on the cost of re-offending. Anything that we can do to chip in has to be a good thing,' Newberry said.

"We pay a fair wage to the prisoners, and we strongly encourage them to pay out of that wage into things like victim support and also towards saving schemes which they can access when they are released from prison. It is less than the minimum wage… but it is a bit misleading to look at the cost structure of a business operating in the community and a business operating inside a prison," he said.

The focus is on creating businesses that would otherwise not have been economically viable, or that have gone offshore where labour is cheaper, Newberry said. "Unfortunately there are 88,000 people in prison as we speak, and there's a lot of inherently good skills in those people, and when tapped into can provide some really good skills for local businesses."