Heard the one about the Justice Secretary who got frightened by a newspaper? He took too many tabloids. Not laughing? Me neither.

The joke is sour. For back in November, thanks to some mischievous creep in the system, it was reported that Whitemoor Prison was offering a well-established comedy course and that one of those enrolled was the terrorist Zia ul-Haq.

OK, it was a good story, especially given that ul-Haq is a trained architect who advised al-Qaeda on bombing buildings, thus enabling gags about “bringing the house down”. Irresistible to tabloid sensibilities. And I, for one, do not object either to putting delusional terrorists in jail or to red-top ranting. Both are part of life.

The real damage occurred when Jack Straw panicked. Without a moment's thought (he is actually proud of this, he used the word “immediately”) he cancelled the course and said that comedy in prison is “totally unacceptable” because it is not a “constructive pursuit”. He continued: “There is a crucial test: can the recreational, social and educational classes paid for out of taxpayers' money or otherwise [italics mine] be

justified to the community?”By which he means that if any knuckle-dragging, vindictive, opportunist media stirrer decides to stoke up ill-informed outrage, even if little or no tax money is involved, then it behoves a senior minister to roll over without a minute's reflection. Do you really want to be governed like this?

Anyway the whole group - not just the terrorist - went back to their cells and were never made to look at the world through the healing, balancing perspective of absurdity and the need to communicate benignly with fellow beings. Cut off, too, were other drama projects at Whitemoor, one by a company with 21 years' experience.

Indeed the track record of UK prison arts and theatre groups is stellar. From musical theatre to needlework, comedy to painting, organisations such as Pimlico Opera, Only Connect, Geese, the London Shakespeare Workout and Fine Cell Work provably change hearts and minds, giving point to incarceration. Some invite audiences, which has the double advantage of making the opera-going classes think about their responsibility for prisons while they queue at the barbed wire and hand in their mobile phones. “The arts,” concluded a government-backed report on 700 projects in 2003, “are associated with positive criminal justice outcomes.”

But the Whitemoor comedy panic was not enough to quench the burning indignation of Mr Straw. His office flung out a PSI - prison service instruction - which David Ramsbotham, former chief inspector, describes as “lunacy”. What the PSI says - I have it before me - is that all activities must “meet the public acceptability test”. It frets, not about what they are but how they “might be perceived by the public”. Moreover, “the type of prisoner” should limit what they may do.

Fear of media runs through it like a broad yellow streak. How on earth can you guarantee that any arts project - even the best - won't be hammered by some thoughtless git looking for a story? If in future years Karen Matthews gets a bit-part in Oklahoma, or a notorious thug is found to be enjoying needlework, it will just take one illicit mobile phone call, or one disgruntled officer to ring the papers, and a good scheme will be toast.

Many brave governors have stuck their necks out for the arts, seeing the benign results all through their prison, but now they must watch their backs and refer everything up. The new PSI gives brief lip-service to the value of art, but its net result has been to cancel or delay projects and to force others to adjust their titles to sound more educational. I suppose the comedy course might have fared better if it had badged itself a “perceptual incongruity workshop”.

But why should it? The poison of the PSI lies in that “public acceptability” concept and the timidity it enjoins: governors who know their prisons well are less trusted than pen-pushers at the Justice Ministry, who never met an inmate in their lives but who are scared of the press and the yob phone-ins. Unless the situation is clarified and reinterpreted, “fear of headlines will reduce prisons to human warehouses and staff to mere turnkeys”, as Juliet Lyon, of the Prison Reform Trust, put it.

Talks, meetings and pleadings are under way. Nobody in the prison arts world wants a dirty fight; and there is evidence further down the Whitehall food chain that below the level of the spontaneously combusting Mr Straw there is an awareness that the PSI goes too far. But departments take their tone from ministers, and if ministers take theirs from ranting hangers-and-floggers, God help us all.

Forgive some subjectivity here: but I have met and talked with men who, illiterate, learn Shakespeare lines off cassettes in their cells and say wonderingly: “That Leontes, what a plonker, I was just as stupid.” I have seen women who never had a chance to respect themselves until they danced in Chicago; watched a young man conduct the finale of Guys and Dolls while his mother sat in the audience, able to hope that he would change. I have talked over the years with inmates who certainly deserved their sentences but who then sewed, composed or performed their way clear of their narrow, angry hearts. I honour those who work with them.

One other line from the PSI. “Prisons,” it says sanctimoniously, “are places which are, rightly, under intense public scrutiny.” Rubbish. Prisons are under intermittent, sensationalist, vindictive, ignorant and shallow scrutiny. Most people have no idea how many inmates are illiterate, care leavers, mentally disturbed or minor recidivists whose crying need is for a doorway back into reasonable society. Most people don't know the figures on suicide, self-harm or the fact that 87 prisons are seriously overcrowded and that the constant “churn” of inmates sabotages rehabilitation. Intense scrutiny? Now that is a comedy line.

Prison reform is not seen as a vote-winner; talking tough is. Even at the expense of careful, proven, humanising work. But always hope, always fight for the right. I am happy to say that Wandsworth does West Side Story with Pimlico Opera next month. After agonising uncertainty, it got reprieved. My spare ticket is yours, Mr Straw, if you'll join me. Though I must warn you, Officer Strawpke - there's at least one funny song. Try to live with it.

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