Mr Welsh runs Plymouth Ocean Projects, one of the country’s leading diving training businesses.

The company runs 74 centres across Britain under franchise arrangements with South Devon and Mid Kent colleges; exactly the type of arrangement put in jeopardy by the crisis over funding for college expansion.

Mr Welsh invested around Pounds 200,000 last year in training and equipment in the confidence that his funding would be secure, paid for by demand-led budgets paid to colleges, which manage to recruit beyond tough targets agreed by the Further Education Funding Council. Now he feels the rug has been pulled from under his feet.

He said: “I can’t afford to keep staff on if I am not going to be paid. At the moment I am talking to my bank about how to survive if this all goes wrong. ”

Across Britain colleges and training bodies were assessing the possible impact of the collapse of expansion funding.

Many face problems with courses set up as franchises with outside bodies.

But that is just part of the problem; many colleges rely on demand-led funding to pay for much of their work.

But colleges are also concerned that the collapse of demand-led funding would throw their current planning into doubt.

At present many colleges plan to overshoot their targets slightly to avoid cash being clawed back if they fall short. Currently that overshoot is paid for by demand-led funding. If DLE funding is axed, colleges fear they may find themselves tied as tightly to recruitment targets as the universities.

At Oldham Sixth-Form College, principal Nick Brown warned the demise of demand-led funding could mean the end of many of the access courses which have helped people from his deprived catchment area into higher education and training.

Links with Manchester University which were to have provided higher education for the town could also be under threat.

He said: “There is real community anger in Oldham over this. I turn away hundreds of students every year who are desperate for 16-19 education because I’m not funded for it.”

At Bilston Community College in the West Midlands, governors have been warned that 10,000 students could be turned away between now and July and another 40,000 could be denied places by July 1998.

And Joanna Tait, principal of Bishop Auckland College in Durham, warned that the demise of demand-led funding could affect 5,000 students and lose the college Pounds 1 million.

She said: “For a very small college that’s a lot, split between work in college and work we are doing with a range of community partnerships. We have 30 organisations which are going to be affected.

“We are fighting like mad to get them to stop this. There’s a great deal of confusion and lack of clarity about what is going on.”