A three-year cuts programme was confirmed by the Further Education Funding Council as new figures showed a sharp increase in the number of colleges in financial trouble.
More than one in five colleges is in the red according to figures published this week - 80 colleges had run up deficits by July 1996, compared with 55 two years before. Principals said cash to support work in deprived areas was essential to meet Labour's pledges for increased opportunity.
The FEFC published plans for a 14 per cent cut in the cash per student available to colleges as new research by the Prince's Trust showed half a million young people lack the skills to get or hold down a job.
The study, carried out by the Employment Policy Institute, found many young people needed help overcoming problems with basic literacy and numeracy - the very group targeted by Labour's Welfare to Work programme.
A Prince's Trust spokesman said: "The success of policies to turn this around depends on the ability of colleges to offer new-style education and training places to people."
Colleges are expecting a share of the funds released by Welfare to Work, and are hoping for support to stem from the recommendations from Helena Kennedy's report on widening participation in education, due next month.
But principals are concerned that long-term cuts in basic funding will damage their ability to respond.
In its submission to the public spending round, published this week, the Association of Colleges calls for emergency measures to see colleges through the current funding crisis, as well as a new budget for college growth, new student access funds and more cash for building projects.
Adrian Perry, principal of Lambeth College, said: "We have the prospect of reductions of #163;4 to #163;5 million, on top of cuts of the same order over the past few years. We have already shed seven sites out of 11, we have made 150 redundancies in the past two years. We can't repeat that in the next two years."
The cuts are contained in FEFC proposals to move to a level playing field in college funding. The convergence timetable was attacked by high-funded colleges for threatening their stability and by low-funded colleges which want extra cash now.
Ian Prescott, principal of East Durham Community College, which has one of the lowest unit costs in Britain, said the college had been hit by historical ly low levels of funding, driven down still further on average by large scale expansion.
But there was unanimity about the size of the overall cut to FE. Current Government projections show FE funding falling from #163;3.09 billion this year to #163;2.99bn in 1999, while student numbers are projected to grow by 7.9 per cent.
The FEFC says it has no choice but to work to existing projections. Ministers have been clear in their commitment to stick to the spending plans inherited from the Tories.
Roger Ward, chief executive of the Association of Colleges, said: "The picture is grim. The financial position of colleges continues to deteriorate, but despite this there are some wonderful successes
and we have the opportunity to work with new Labour on their key manifesto pledges. We can seek an increase in funding, but only on the basis of delivering the education, education and education manifesto."