The plan amounts to the most radical reform ever for the FE sector and is akin to granting degree-awarding status to universities.
Chris Hughes, chief executive of the Learning and Skills Development Agency, said: "We need to completely rethink the national qualifications framework and build a new relationship between colleges and employers."
Research evidence from the agency, to be published at its summer conference in London next week, shows that the national framework is failing employers and hampering college links by putting unnecessary bureaucracy in the way.
"It is needlessly prescriptive and centralised. What we need for qualifications is national recognition and local generation," he said.
The Association of Colleges called on ministers this week for more flexibility to meet employer needs. But, while government thinking is moving in this direction, nothing as radical as Mr Hughes's plans has yet been considered.
Only colleges which passed strict inspection and audit controls would be accredited to award certificates and diplomas under his proposals.
The content would have to be broadly approved by the Qualifications and Curriculum Authority and accepted as meeting industry standards by the new sector skills councils. But detailed content would be left to the college and employer.
Mr Hughes insisted this was a central issue that had to be addressed by ministers in the Skills Strategy White Paper later this month. Efforts to create a flexible qualifications market were restricted so far to the idea of a national bank of credits for employers to choose from.
"It is like the old car showroom where you are told you can only pick from 10 models. Community colleges in the States and the FE and technical institutions of Australia have become local licensed accrediting bodies, and so should our colleges," he said.
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