One of the UK’s best-performing colleges has become the latest training provider to call time on a loss-making prison education contract.

Lewisham College in south London announced it would terminate a year early its deal to teach inmates at Belmarsh and Brixton prisons because it had too many other commitments - although it also admitted the deal was underfunded.

The decision came after A4e, another private training provider, threatened to end its three-year education contract in Kent prisons, blaming a shortfall of amp;#163;900,000.

With the notice period due to run out on July 31, A4e has accepted an improved offer from the Learning and Skills Council (LSC) to continue working in Kent.

Stephen Lawes, finance director at Lewisham College, admitted its shortfall was smaller than A4e’s, but said: “It’s a greater subsidy than was appropriate for the college to make. By running this, we are taking funds from elsewhere. It’s an issue that goes even beyond the LSC, to the overall funding for offender learning.”

The prison education contract requires Lewisham College to give three months’ notice, so the skills council will have to find a new provider by October.

Ruth Silver, the college’s principal, denied leaving offenders in the lurch by ending the contract after just two years.

“It’s the very opposite of that, in our view. We know there are other colleges who will be willing to take on this contract,” she said.

It was better for another provider to take over while Lewisham focused on the amp;#163;150 million rebuilding of its Deptford campus, as well as its Train to Gain and apprenticeships work, she said.

But Christiane Ohsan, the University and College Union’s national official for offender educators, said that if Lewisham College could not provide education at the prison under the skills council’s terms, then other providers would also struggle.

“This is a college that has met all the challenges,” she said. “I am surprised. We never thought Ruth Silver would be defeated. She’s taken on board so much. It’s a measure of how complicated it is to run an offender learning and skills service.”

Ms Ohsan said that teachers in prison education were being undermined by underfunding and lack of stability, and that continuity was essential for those helping offenders to get skills for future jobs.

Lewisham College’s decision to quit means that teaching staff at the prisons will now await a third employer in three years. Brixton has been particularly blighted by upheaval: three years ago, Reed Learning, its private provider, was suspended by an exam board because of allegations that inmates could cheat too easily.

The LSC said it was drawing up a new funding system for the amp;#163;140m it spends annually on prison education. This should be finalised in time for the issuing of new contracts in summer 2009.

Steve Crow, the LSC’s skills development director for London, said: “We will encourage a seamless transition from Lewisham College to a new provider and ensure that there will be a minimal impact on learners and staff working in the service.”

He said the funding body had already begun negotiations with other providers to take on the work until July next year.