The pound;1.2 billion 19 per cent rise Charles Clarke announced last autumn appeared to be enough to redress many inequities.

But, as the Association of Colleges points out, the headline increase of 10 per cent for 2003-04 will turn out to be nowhere near that, after costs including teacher pensions, increased National Insurance, and teachers’ pay rises are taken into account.

Despite this, the council was able to guarantee a minimum 6.5 per cent budget rise for all, while giving some colleges extra in line with Mr Clarke’s edict to reward performance.

Everyone will win, though some will win more as the LSC has come up with a formula to wipe out the annual 1 per cent “efficiency” budget cut - imposed for 10 years - and guarantee 2 per cent for all who sign three-year performance agreements.

Colleges hitting targets next year will get an extra 2.5 per cent; those that exceed them 3.5 per cent. But it will be no give-away, as they will have to raise enrolments by 11 per cent over three years.

Colleges will set other targets in agreement with local LSCs and without the red-tape burdens of the past. The key point is that success will bring more funding.

Meanwhile the funding system has been made simpler and less bureaucratic: for example, the arcane “unit-based” measurement of funding - what Ken Pascoe, LSC policy director, calls “pound;17 widgets of learning”, will be replaced by student head-counts.

But last week, the AoC attacked the package, arguing that allowing 47 local LSCs to agree targets with colleges would in effect “create 47 different funding methodologies”. They added that linking funding to performance reviews would also create instability in the most cash-strapped colleges and add to, not cut, paper mountains.

Rejecting this argument, Mr Pascoe says. “This is a long-term strategy ...

and ... it is easy to pick holes in it. When change is made, there will always be some who gain and others who see reductions because the new formula seeks to reward success in retention and achievement. What we are dealing with here is a change in the entire approach to funding.” He says there will be funding to compensate those who lose out in changes.

But major problems remain. The council cannot wave a magic wand to make deficits, suffered by half of colleges, disappear. The total of these is conservatively put at pound;1.5bn. Nor can it restore staff and resources lost after ill-fated past policies, such as the dash for 16-19 expansion on the cheap, franchising of courses to industry and individual learning accounts.

Mr Pascoe acknowledges this: “I think the LSC is a victim of all that has gone before in a sense,” he says.

He agrees past policies have created losers. Perversely, many who achieved most in recruitment and franchising lost most - not always because they misinterpreted the policy but because the funding tap was unexpectedly turned off.

Moreover the talk of reward for success worries many who see it as iniquitous pay by results, with cash withdrawn from those who need it most.

Hence the AoC’s scepticism that the new relationship called for between colleges, work-based providers and the LSC will work.

But Mr Pascoe is adamant that a lighter touch, the end of cash clawbacks for those who come within reasonable reach of targets, and funding simplification will bring dividends to all. And for those who remain in doubt? “There will be further consultations later in the year,” he says.