The original plans for this week's White Paper on post-16 reforms intended that sixth forms and colleges should be given equal funding. The change would have left small sixth forms vulnerable.
But Tony Blair called for changes because any perceived attack on school sixth forms would lose votes in Middle England.
The Government has managed to fudge the sixth-form problem by delaying it, moving to a common funding system over time.
Thanks to Mr Blair's involvement small sixth forms now have time to reorganise.
Education Secretary David Blunkett has guaranteed there will not be a reduction in funding for school sixth forms, but they will be expected to share courses and sites with colleges.
He said the aim was equivalent funding for equivalent courses, but it would take time to level up. He said heads would still be able to subsidise their sixth forms from the school budget, but must make it obvious if they do so.
He said questions had to be asked when sixth-form colleges produce the same results for less money. It costs school sixth forms pound;7,380 to achieve 3 A-levels compared with pound;6,250 for FE colleges and pound;5,910 for sixth-form colleges.
Chris Woodhead, the chief inspector, will be given new powers to inspect sixth-form colleges and FE colleges. This has led to fears of increased comparisons and cut-throat competition between school sixth forms. Larger ones could flourish under the new arrangements, but smaller ones may be deemed underperforming, and be taken over by colleges.
The paper says "weaker sixth forms and colleges should be tackled, for instance by drawing them more fully into the pattern of local provision, increasing overall participation rates and standards".
A separate consultation on sixth-form funding notes the AAS levels results are lower in small school sixth forms - the 6 per cent with 50 pupils or fewer are believed to be the most vulnerable.
Doug McAvoy, general secretary of the National Union of Teachers, said the unique character of school sixth forms and their relationship with the rest of the school must be maintained.
The White Paper abolishes the Further Education Funding Council and training and enterprise councils and creates the Government-appointed, employer-led Learning and Skills Council, with a pound;5 billion budget, serving 5 million students. There will be between 40-50 local branches which will work with other agencies to plan post-16 education.
Mr Blunkett said the measure would save pound;50 million a year on bureaucracy.
The Local Government Association said it welcomed greater collaboration between providers, but feared the Learning Skills Council would take away councils' ability to find local solutions to problems.
Launching Learning to Succeed, Mr Blunkett said: "There is too little clarity, co-ordination and coherence in the the existing post-16 system: staying-on rates remain too low and standards are variable."