The Ministry of Justice has suspended the development of a number of pilot payment-by-results projects in order to reconsider its strategy.
A letter sent out to probation trusts and organisations involved in payment-by-results pilots said that Chris Grayling, the new justice secretary, and Jeremy Wright, the minister for prisons and rehabilitation, who is responsible for the PBR portfolio, were "currently considering the strategic direction for the use of PBR as part of the overall reform of probation and the wider system".
It says ministers "have therefore decided to pause the remaining competitions underway in the PBR pilot programme until they have determined the strategic direction they wish to take".
Projects affected include plans to contract out some aspects of probation services in Wales and the west midlands and a scheme at HMP Leeds that works with offenders released from prison. A community innovation scheme, which asks voluntary sector organisations to submit ideas about PBR to the Ministry of Justice, has also been put on hold.
"We would like to reassure you that ministers have been very clear that PBR remains a priority and there is still considerable interest in the progress of existing pilots," the letter says.
A spokesman for the Ministry of Justice said programmes that had already started, including the first social impact bond at HMP Peterborough, would not be affected.
He said the department remained committed to payment by results and was merely pausing to assess its overall progress. "This is a very complex area and we are simply evaluating where we have got to," he said. "Nothing has been abandoned. Payment by results is going to happen."
Clive Martin, director of Clinks, the umbrella body for charities working with offenders and a recipient of the letter, said the decision to pause was "an opportunity to explore the complicated issues that have arisen from this controversial contract framework".
But he said the delay could cause financial difficulties for a number of charities, which were relying on "business opportunities" from the Ministry of Justice.
He said the government should compensate organisations that had been involved in developing bids for projects that were delayed or did not happen.
"At a time when the sector is struggling to provide services to those most in need, it is vital that the costs incurred are reimbursed," he said.