Labour's pound;10-billion-a-year creation, which funds further education, would be culled along with other bodies which have become part of the landscape. They include the regional development agencies, the Qualifications and Curriculum Authority, the Sector Skills Development Agency, and the recently created Quality Improvement Agency.
Lord Leitch, adviser to the Chancellor and chairman of the National Employment Panel, says many of the quangos are a waste of money. A source close to Lord Leitch said: "He believes the right solution is to create a broader market and that every intermediary body in the way of that market should go."
Lord Leitch was hand-picked by the chancellor Gordon Brown to carry out an audit of Britain's skills and training requirements to the year 2020. The inquiry was partly prompted by the UK's low rating in international tables for workforce skills and productivity.
The report, due to be published with Mr Brown's pre-budget statement in November, will also say the UK spends only one-third of what it should on adult basic skills, which needs to be tackled quickly if the country is to compete globally.
The LSC spends pound;750m on basic skills, including literacy, numeracy and English for speakers of other languages (Esol). A tripling of the budget could take spending to pound;2bn. However, the money would come from the existing Department for Education and Skills' budget. It would therefore be found by scaling down Esol spending, raiding the pound;1.9bn for adult education in the FE budget and redistributing cash from closed quangos.
The Leitch recommendation to close the LSC was pre-empted this week by John Hayes, the Tories' FE spokesman, who, in his first public speech on skills, said it was unacceptable that pound;1bn of the funding body's budget failed to reach colleges and other providers.
Lord Leitch's interim report, published last autumn, warned that skills shortages threatened prosperity. More than one-third of adults in the UK lacked a basic school-leaver qualification, and five million adults had no qualifications at all, he said.
At the time, a report by Sir Andrew Foster on the future of FE in England called for colleges to focus more on training and to specialise around their strengths rather than trying to do everything post-16. Lord Leitch will endorse that and call for the upper levels of FE - level 3 (A-level equivalent) and beyond - to be subject to much greater market influence.
His final report will also propose ways of cutting bureaucracy.
Those hoping for tough measures compelling industry to invest more in training will be disappointed. His report will not recommend guaranteed time off for education and training, nor any return to industry training levies or other interventionist measures.
Instead, he will opt for gentler "market regulation" such as the introduction of "licences to practice" in industries where there are particular health-and-safety and consumer risks.
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