A major review of colleges’ training responsibilities is being called for by senior officials from the training and enterprise councils. Complaints have also been made to the Nolan Committee on Standards in Public Life, which this week made public the details of its new inquiry into educational bodies.

The TECs argue that some colleges are trespassing on their territory by running courses for industry in the workplace. They insist that in any case businesses should pay for the service and not take money from the public purse.

The potential clash of interests between the TECs and colleges has come to a head with the merger of the departments of Education and Employment. Before this, TECs and colleges were under different departmental control and operated - as they still do - under different financial rules.

Chris Humphries, policy director for the TEC national council, said: “We are explicitly constrained from helping companies to pay for the cost of training their own workforce. If that policy is applied inconsistently we have a failure of public policy and a serious misuse of public money. Everyone has a right to expect that this rule should be applied consistently.”

Treasury officials are likely to want the funding anomalies ironed out and the franchise rules tightened. Ministers have pledged to drive down levels of public subsidy for private training, calling on companies to spend more instead.

They made the Government’s position clear recently when they opposed a new European Union initiative to use its Social Fund to retrain workers facing redundancy. They rejected the scheme because it was funding employee training.

The Further Education Funding Council is carrying out its own inquiries into franchising schemes where colleges sub-contract courses to industry and schools. A working party is due to issue guidelines this autumn.

One working party member, who insisted that colleges could not be named, said: “We are concerned that cash may be flowing the wrong way, from the FEFC, to the college and on to industry.”

Some franchise courses run by Halton College, in Cheshire, are under FEFC scrutiny, including a national retraining programme for 9,000 Tesco staff. Courses will lose money if the college fails to convince the FEFC that value has been added which firms could not achieve without the college’s help.

But the TECs suggest that some colleges are going even further by offering basic training, including apprenticeships. And a spokesman for the Nolan Committee said: “These are the sorts of issues being raised with us, but not in any great detail. We want to hear more about them and will investigate further where there are questions relating to cash and probity.”

Lord Nolan said this week that he had received 200 letters of complaint about the conduct of grant-maintained schools, FE colleges, universities and TECs.

Many TEC leaders are pressing for the DFEE to sort out the tangle of training responsibilities. They insist that working relations - which got off to a shaky start when colleges gained independence from local authorities three years ago - have improved immensely, and they do not want a return to what they see as the bad old days.

Alan Moody, chief executive of the Birkenhead-based TEC, said: “It becomes a nonsense if you have one half of a department doing everything possible to ensure employers increase their cash investment in people and another half which unwittingly creates a result working in the other direction.”

A DFEE spokesman said: “The department is aware that the FEFC is looking into criticisms of some courses but we have no reason to believe the problems are widespread.” TECs themselves were required to approve colleges’ strategic plans and if the colleges still went beyond funding guidelines the FEFC could intervene.

In a move which suggests the DFEE may intend to stress business training through companies, not colleges, Gillian Shephard, the Education and Employment Secretary, this week announced a Pounds 1 million boost to help small firms meet the training challenge.

Awards of up to Pounds 50,000 will be given for co-operative ventures involving at least 10 companies working to generate new training ideas.