Here's a story from The Guardian (much more reliable and respectable), reporting on the initial introduction of this scheme in 2007: http://www.guardian.co.uk/society/2007/apr/12/socialexclusio...
And more recently - http://www.guardian.co.uk/society/2009/jul/22/youth-justice-... - The Guardian report on the expansion of the scheme, which is what the Wired and Daily Express articles are about.
The idea is simply that, at the point where problem families would normally be prosecuted or have their kids taken away by social workers, they are given an alternative which will hopefully be better for everyone involved. They are not spied on; rather, they move "into dedicated residential units with round the clock supervision by social care workers, providing support, parenting advice and counselling. There is no legal compulsion on the problem families to live in the specialist units but those that do can avoid permanent eviction from council housing, prosecution for antisocial behaviour, or their children being taken into care."
It sounds more like a hospital than a prison; rehabilitation, not punishment.
Wired clearly had some fun with the article, but it's important to clarify how inaccurate it is.