I think that anyone committing a 'major' crime, eg paedophiles, murderers, rapists etc should be castrated and sent to separate towns (to live with their own kind!), with those electronic tag thingys so you'd know if they escaped or took the tag off. They should have to produce stuff that would be sold to buy the basics they needed, just like any other community, or they'd starve (their own fault). Then the only people they could hurt would be each other and they wouldn't be able to bring any kids into the situation. And if they've already got kids who have got no-one else to care for them, they'd be better off in care anyway.
That way the taxpayer wouldn't have to pay anything (after the initial set-up costs) for their upkeep and we could even rip them off big style, to give money back to the country. There's loads of space in Scotland where it could be done (sorry to anyone who lives there) and the towns could be miles away from anyone else. If you want to be really fair, just pick a spot, set up the electric tag and barrier systems then leave them to build their own shelters etc.
This is the best alternative I can come up with, other than capital punishment. Also, the leftover prisons could be used temporarily as doss houses, solving the homeless problem, and then turned into something useful (offices, museums etc).
I really REALLY wish this was going to be put into practice but as a country we're too soft on criminals. (or we could just send them to some Far Eastern country where they'll get everything chopped off just for giving someone a funny look!!!)