The headlines following the spending review - a 19 per cent real terms increase in funding by 20056 - offered colleges hope that the cumulative erosion in the resources of the 1990s could at last be permanently reversed. The problems they had generated - in relation to pay especially - could surely now be tackled.

But the funding package is complex and while Mr Clarke made it clear that there was both substantial new money and re-allocation of existing programmes, the real implications for the sector were by no means self-evident.

So what does it really mean? Three key points need to be understood.

First, the package assumes significant growth in enrolments - amounting to 11 per cent - over the next three years. But even when this is taken into account, total real resources per student will be 8 per cent above 20023 levels (20 per cent above 19967) by 2005. Even if the specific funds still to be controlled centrally are excluded, core funding per student will have risen by 10 per cent on 19967 levels.

Second, the headline increase in mainstream funding rates for 20034 of 10 per cent is at first sight impressive. But the approach adopted to the consolidation of funding for the teachers’ pension increase, Teaching Pay Initiative and Standards Fund money for staff development will leave many colleges with less of a real increase in free cash than they might have expected. In the absence of any detailed public explanation of these transfers, it is not surprising that many colleges are confused about the effects on their own budgets for next year.

At a national level, analysis suggests that for many colleges the cash left after the associated costs have been met will be closer to 3.5 per cent than the 4.5 per cent implied in Success for All. For individual colleges the position will vary depending upon the precise impact of the increased employer contributions to the pension scheme.

While this will be offset for many colleges by increased income from the enhanced widening participation premium, bigger area cost allowances, and other allocations, this clearly limits the scope for spending on items such as pay.

Third, colleges are facing increasing costs for which no specific funding has been given, and which therefore represent a first claim on the new monies available. The Association of Colleges estimates that the combined effect of increased employer national insurance contributions, the additional pensions contributions, will add costs equivalent to an increase of about 1 per cent (pound;40 million) of core funding in 20034.

So, for the coming year, funding - and with it the scope for significant improvements in pay levels - will be much tighter than might have been expected. In 20045 and 20056 the position will ease, with real terms increases of 2.5 per cent in each year - but as the magnitude of these figures make clear the scope for improvement will remain modest - and almost certainly insufficient to restore all the pay relativities lost through the 1990s.

But the position will be complicated by the performance-related funding system set out in the Learning and Skill Council’s proposals for Success for All. Colleges will be exposed to greater uncertainties, with real terms increases dependent upon achieving a wider range of targets. They will also need to devote resources to involving employers and raising success rates.

There is also staff training and development which will itself limit the scope for improvements in other areas.

So, did the headlines fairly represent the reality of the funding settlement? Alas, for many colleges the constraints and the need to achieve targets will mean that room for manoeuvre will be much more limited than those headlines might imply. So no bonanza then.

John Brennan is director of further education development at the Association of Colleges