The Wolverhampton college becomes the first to shut since further education colleges were released from local authority control six years ago. It is the first casualty of the Government’s get-tough policy on failure in further education colleges.

The inquiry team, headed by Further Education Development Agency chair Terry Melia, says Bilston’s debts - which could exceed pound;10 million - make its survival impossible. It concludes “we see no future for Bilston Community College ... the inquiry team therefore recommends closure”.

The report describes the catalogue of errors which led to Bilston’s collapse. It says the college neglected the needs of local people due to a preoccupation with franchising and international work, the governing body lacked the necessary expertise and business acumen and staff were distracted from teaching by business ventures.

Crucial management decisions were made on the basis of “propaganda and wishful thinking” rather than “analysis and common sense”, the report says.

But it throws a lifeline to Bilston’s 10,000 students and remaining 400 staff - although not its governors - by recommending the creation of a new “millennium college” by merging with neighbouring Wulfrun College. The new college - to open on January 1 - would be part of a “Wolverhampton-wide solution to further education needs in the town”.

A transitional governing body will be appointed later this month and all Bilston’s governors - who the report says should be barred from serving on the board of the new college - will resign.

The new college - which has the support of the local council, university and business community - will pool resources and combine strategy in a way which, the report says, could be a template for lifelong learning in the next century.

Money from the Government’s standards fund for FE could finance staff development, improve accommodation and student support and set up a central “learning hub”, the report suggests.