Provisional plans to extend educational maintenance allowances nationwide have been put on hold because ministers are not convinced they are cost-effective.

The means-tested allowances - designed to keep 16-year-olds in education - have so far been piloted in around one-third of the country at a cost of pound;150 million.

A nationwide launch would cost pound;600m, money which the Government thinks would be better spent elsewhere. Lecturers’ pay and improving the quality of courses are both seen as higher priorities in what are likely to be tough negotiations with the Treasury to fix spending for the next three years.

There is a growing feeling within Government circles that FE has been treated less favourably than either HE or schools. The lecturers’ union NATFHE and the Association of Colleges have persuaded the Government that pay levels are unacceptably low, and that much more must be done to help lecturers catch up with schoolteachers.

But as work continues on the next comprehensive spending review - where the Government will come under pressure to focus on HE student finance - hopes of extending EMAs look likely to be dashed.

The news will come as a disappointment to supporters of the scheme, including the Local Government Association, who hoped that it would go nationwide in 2004.

Graham Lane, education chair of the LGA, has written to ministers urging them to extend the grants which he says have delivered real benefits to disadvantaged young people.

Independent research has also pointed to the success of EMAs in keeping young people in education. But civil servants remain to be convinced that increased expenditure can be justified.

Government insiders say that participation gains have been restricted to around 5 to 6 per cent, and in some areas staying-on rates have improved by as little as 3 per cent. Officials have been instructed to devise some way of targeting increased investment at those 16-year-olds who will only stay on if they receive a financial help with their living costs. So far they have rejected means-testing dependent on household postcodes.

The allowances give young people staying on in full-time education after age 16 up to pound;40 a week. Research carried out by the Learning and Skills Development Agency has shown that the allowances are having an effect, particularly in the case of disaffected young men.

In Middlesbrough, one of the areas piloted, the proportion of young people staying on in full-time education increased from 48 per cent in 1998 to 64 per cent the following year after EMAs were introduced.

Chancellor Gordon Brown was sufficiently impressed to provide the money to extend them across a third of the country. This week he pledged at the Labour party conference that public spending commitments would not be derailed by the events in America.

However, the world economic downturn, combined with the foot-and-mouth crisis, had already put pressure on the public purse. The current prospect of expensive military action will restrict further Mr Brown’s options.