A cash crisis following the collapse of South Thames Training and Enterprise Council may force up to 50 south London schools to pull out of the Investors in People scheme, the Government’s strategy for improving standards of management and employees’ skills.

Agencies which provide training for thousands of local unemployed school and college-leavers are going under, crippled by debts of up to Pounds 50,000 each, as cheques from the TEC bounce.

Four colleges owed at least Pounds 2 million by the TEC may have to make huge cuts and lay off staff to avoid going into the red. The irony is that they will be under even greater pressure to take on trainees from bankrupt agencies.

The full impact of the collapse of South Thames, based in one of Britain’s worst patches of unemployment, is only now beginning to emerge. Some companies stopped paying trainees midweek. But the greatest damage lies in the nationwide loss of confidence in TECs.

The Government’s refusal either to indemnify creditors or hold a full independent inquiry has angered not only the organisations who are owed money but the staff of South Thames TEC itself. They insist ministers should have stepped in months ago.

Employment minister James Paice last week distanced the Government from South Thames’ problems, saying the TECs were private companies and the receivers would deal with the debts.

Asked if the Government would help with a rescue package, he said: “We paid the money to the TEC and we don’t intend to pay twice.” He described the South Thames debacle as a “one-off” and said “it will not happen again”.

Controls to hand were improperly managed, he insisted.

That may be so, but other TECs across the country are in deep financial trouble, even if not facing bankruptcy. At least one is understood to be in trouble with its payment-by-results agreements with colleges and agencies.

Against such a bleak background, Woolwich College of Further Education - one of the four FE colleges affected by the collapse - this week held a conference on job regeneration in the Greenwich labour market. Unemployment in the borough is 14 per cent, but exceeds 30 per cent in depressed riverside areas.

For more than a decade Greenwich people have seen billions of pounds in public subsidies spent on the other side of the river. Canary Wharf in Docklands grew like a finger pointed skyward in grotesque mockery of their decline from a time when the Woolwich Arsenal alone employed 80,000.

It took local Conservative MP Peter Bottomley to point out the unfairness. When huge cash compensations to retrain redundant coal miners were agreed, he said the Greenwich community had seen “coalfields” closing for the past 20 years. Other TECs say that the Government’s response to South Thames TEC is “hypocrisy”. One representative at the jobs conference said: “When we are in trouble we are private concerns; when ministers want to cut our budgets we are public concerns.”

With ever less flexibility, the most needy groups were hit hardest. Daphne Milner, director of education and training for South Thames TEC, said: “As our budgets decline, things which have deteriorated or gone include child-care support, aids and adaptations for people with learning difficulties and disabilities on training courses, funding for travel and for work away from home - such as Outward Bound courses which build the whole person.”

Woolwich College will next week consider pulling out of all TEC-funded work. Geoff Pine, the principal, says: “It costs us more than we get.” Other TECs are considering doing the same. “It has destroyed our confidence in the entire movement,” Mr Pine said.

Woolwich College works closely with Greenwich Council and Greenwich Waterfront Development Partnership (a business and development agency). Not only are these the three largest employers in the borough, they have links with virtually all other business and community groups.

The three jointly sponsored the jobs regeneration conference. As strategies for retraining the lowest skilled and unemployed were being considered, it dawned on many delegates that these functions could be fulfilled without the support of a TEC. If this is true for Greenwich, what about Merseyside, Newcastle or Walsall?

By agreement between the Further Education Funding Council and TEC National Council, TECs must approve college strategic plans and have a seat on their boards. But many colleges which contacted The TES after the South Thames collapse reckoned the TEC role could be reduced to little more than a rubber stamping.

Last month, Greenwich finally found itself getting a share of the subsidy cake though nowhere near the size of the Isle of Dogs’ share. Most of the money, in any case, has been recycled through the Single Regeneration Budget which pools all public cash for social, environmental and industrial revival, then invites bids.

Greenwich has Pounds 25 million, which it hopes to channel into crime prevention, environmental improvements and raising education and training standards. A recent survey by the council showed that one in four people faced “serious poverty” with families earning less than Pounds 5,000-a-year. This group has been hit hardest by TEC cuts.

Council leader Len Duval told the conference: “We have been forced down a road of false competition. We have been closed and looking inward rather than outward. This is the biggest threat in terms of training provision for the area.”

His hopes for revival are also pinned on a bid to the Millennium Commission to support the redevelopment of a 296-acre industrial wasteland as a new arts complex with a planetarium. With its historic monuments such as the Cutty Sark and Christopher Wren’s Royal Naval College, Greenwich is already a tourist centre.

The scheme is expected to raise Pounds 224m with Pounds 17m profit for British companies. It has the backing of the London Tourist Board.

If Greenwich is on the threshold of revival - the Jubilee Line and Docklands Light Railway extensions will finally put it on the London transport map - then Mr Duval wants to make sure local people benefit, avoiding a repetition of the Docklands story in which most of the poor were moved to someone else’s patch.

An unanswerable question is how will the replacement for South Thames TEC fit in with these plans? Colleges cannot divorce themselves from TECs, and many say they would not want to. But relations between the two camps have always been fragile and, in allowing South Thames to go under, ministers have done an extreme disservice to the TEC movement.