Mr Blunkett's recommendation to pay out-of-pocket expenses from college budgets is a major departure in Government thinking and a rejection of Lord Nolan's opposition to such payments in his inquiry into standards in public life.
College leaders welcomed the plans. Marcia Roberts, director of professional services for the Association of Colleges, said: "We are delighted with the extra discretion given to governing bodies and corporations. Self-employed governors particularly will benefit. They are the ones who have lost out most under the current arrangements."
Colleges have said the lack of compensation is a deterrent to recruitment. Payments to FE college governors caused controversy two years ago when it was revealed that corporation chairs were getting up to pound;5,000 a year. The then education secretary Gillian Shephard halted the practice which was also condemned by the Nolan Committee.
Further Education Funding Council chief executive David Melville said Mr Blunkett's proposal would clarify the situation.
Governors devoted considerable time and effort "to carrying out their duties without thought of personal gain", Mr Blunkett said. He was eager to ensure that posts remained voluntary and that no governor should benefit financially from their position.
The limits of such payments are defined in a Government consultation paper Accountability in Further Education, published this week by the Department for Education and Employment. "He is concerned that people from groups under-represented in governing bodies may be deterred by an over-strict interpretation of the rules on expenses," the DFEE says.
"In exceptional cases, such as a meeting called at short notice, it may be justifiable to pay an element of compensation to governors for loss of earnings if the governor can prove it was not possible to rearrange work to avoid the loss."
The report adds that in addition to the standard reimbursement of costs of fares and meals during anti-social hours "it may be justifiable to pay childcare expenses if the governor cannot make alternative arrangements".
It stresses that compensation for loss of earnings may only be made "in exceptional cases" and that every effort must first be made by the governing body to find times or dates which will not require such payment.
Nevertheless governing bodies have been given considerably greater freedom, Ms Roberts said. "We accept that governors should not profit from their duties but they should not lose out either. Mr Blunkett's recommendations leave it to the corporation to determine what is fair and what it can afford."
The association has generally welcomed the proposed reforms to the structure and rules of governance which, she said, was very close to the advice from the AOC to the DFEE.
The changes in composition, giving greater representation to local education authorities, the community, staff and students - and less to the world of business - was welcomed. "But we are not entirely happy with the requirement to have a nominee from the training and enterprise councils. Lord Nolan recommended that there should be no TEC representatives 'as a matter of right' and we want Mr Blunkett to stick by that."
Any payments for loss of earnings cannot be made, the DFEE consultation paper says, without prior written approval from the Secretary of State.