There is also a focus on reducing the use of custodial sentences in favour of community sentences.
The plan commits to ending “unnecessary” custodial remand for children, where someone is held in prison while they await trial of sentencing.
The government is promising to reduce the practice by 25% before the next election to ensure children are not held unless public protection requires it.
It said these measures could reduce the youth population in custody by 20%.
Ministers will also explore strengthening Youth Rehabilitation Orders – community sentences given to children, which can include unpaid work, curfews, or a requirement to undertake treatment.
The government said intensive supervision, allowing electronic monitoring to track a child’s whereabouts, could be used to keep the public safe.
However, it stressed custody “will always remain essential for the most dangerous offenders”.
The government will also consult on reforming childhood criminal records, potentially ending lifelong disclosure requirements for childhood offences.
Offences can be disclosed during criminal record checks, which can affect job opportunities.
Campaigners argue this means people can be held back by mistakes they made as a child.
Other measures include an extra £15.4m a year for the government’s early intervention Turnaround programme.
The government said the funding would help 12,000 children at risk of entering the youth justice system over the next three years.
It will also deliver on a commitment to create a new child criminal exploitation offence, targeting adults who draw children into offending.
Lammy, who is also justice secretary, said: “Too many young people are being drawn into crime, with devastating consequences for victims, communities and their own futures.
“These reforms lay the foundation to intervene far earlier, support families, and tackle the drivers of offending so fewer young people become trapped in cycles of crime, creating safer streets and fewer victims.”
The Alliance for Youth Justice welcomed the government’s recognition “that the youth justice system is not working”.
A spokeswoman added: “Steps toward reducing custody numbers, diverting more children from the formal justice system as early as possible, reforming the criminal records system and a willingness to look at the age of criminal responsibility are all positive but the government must move from ‘considering’ change to committing to it.
“To keep children and communities safe, and fix a secure estate in deep crisis, we need legislated limits on custody, binding targets to eliminate racial disparities, and an urgent shift away from failing institutions toward welfare-focused alternatives.”
Conservative shadow justice secretary Nick Timothy said: “Whatever Labour say today they have already shown they don’t have it in their DNA to be tough on crime.
“They’ve let thousands of prisoners early and abolished short term sentences – so most perpetrators of knife crime who have been sent to prison in the past few years will escape a custodial sentence in future.”
