Speculation is mounting that the first college collapse is looming amid increasing reports of financial crisis and evidence of unprecedented redundancy plans.

At a meeting yesterday the Further Education Funding Council’s Yorkshire and Humberside regional committee discussed confidential reports on the “adequacy and sufficiency” of further education provision in Leeds and Rotherham.

The use of the official jargon, referring to the FEFC’s legal obligations to ensure a minimum provision in England and Wales, is seen by many as a coded warning of possible college closures.

The FEFC said: “There are two colleges in Yorkshire and Humberside known to have considerable difficulties. This has prompted the regional committee to consider the full pattern of FE within the catchment area of the colleges, the contribution the colleges make to FE opportunities in their area and the possible effect of any significant reduction of provision which the colleges may make as part of their plan to balance their books.”

The two colleges understood to be causing the FEFC particular concern are Rotherham College of Arts and Technology and Thomas Danby College in Leeds.

Around 75 redundancies are expected at Rotherham, which fell into severe difficulties amid spiralling debts in February this year. The college was one of around 50 on the FEFC’s “sick list” of institutions facing serious cash crises.

At the time, funding chiefs approached a number of neighbouring colleges, including Sheffield College, to discuss mergers. Yesterday’s FEFC regional committee meeting will have considered what provision currently offered by Rotherham and Thomas Danby is not available elsewhere which would have to be farmed out elsewhere if the closure option was taken up.

Graham Pears, Rotherham acting principal, insisted that the college would not go under, but accepted it was facing a crisis due to high wage costs.

A recovery plan was set in motion last year as Thomas Danby College went Pounds 1.5 million into the red. While it expects a modest surplus next year and will have a 6.1 per cent budget increase, the principal Colin Couble said hefty debt payments meant a continued efficiency drive.

The spectre of college closure has been hanging over the further education sector since incorporation, when it was predicted that present numbers of institutions were unviable. As the screw tightens on colleges, facing 17 per cent cuts in costs in the next three years, the FEFC is understood to be facing its worst dilemma.

Some members of its board are asking why, if the cash crisis is as serious as is claimed, no college has yet gone under.

Thomas Danby is one of nine colleges in Leeds. While managers despair at the lack of co-ordination between the institutions, Mr Couble of Thomas Danby, insists that with 10,000 students his college has carved out a crucial niche.

Rotherham claims a unique role in its community, but with numerous sixth forms and three large colleges within 30 minutes’ travel it is also seen as ripe for rationalisation.