Up to a third of that cash would be needed for the first stages of a five-year plan to link all colleges through networks and retrain college staff.

But as the implications of Chancellor Kenneth Clarke’s autumn Budget announcements are analysed, colleges say draconian measures are needed to contain spending.

Madeleine Craft, secretary of the Association of Sixth Form Colleges and principal of Long Road Sixth Form College, Cambridge, said: “If we are really to move into a new century with new technology, how are we to do it with this massive reduction?” All the colleges contacted by The TES this week said they needed big injections of capital in order to pay for new equipment. Lewisham College was a typical case. Its principal, Ruth Silver, said: “We get Pounds 250,000 from the Further Education Funding Council but have to top that up with Pounds 400,000 from elsewhere.”

The plan to upgrade technology follows the inquiry by Sir Gordon Higginson whose committee outlined the minimum needed for colleges to meet flexible curriculum and admin needs.

The FEFC wants to fund a staff development programme, specialist information and advisory centres, a national communications network similar to that in higher education, and research programmes to evaluate the reforms to be made.

But it needs the backing of the colleges to agree to a top-slicing of capital funds for the collaborative programme. This will not come through the Public Finance Initiative (PFI), the Government scheme to promote private investment in the public sector, and principals say they cannot afford it.

Analysis of the PFI market by the leading college organisations suggests disaster awaits any attempt by colleges to boost their budgets with tie-ups to private companies. Mrs Craft said: “We are extremely worried that we will not be able to provide the sort of accommodation which will generate income appropriate to the PFI.”

Efforts to explain the damage the funding cuts would do to colleges were rejected so abruptly by junior education and employment minister James Paice at the association’s annual conference last week, that principals at what has usually been seen as a sedate affair ended up heckling the minister.

Mrs Craft said: “I went on the PFI register after the launch of the scheme at the FEFC conference. All I have received is letters from consultants trying to sell me expensive advice, but not a single sensible proposal.”

The Association for Colleges has also trawled the market looking for opportunities. Ruth Gee, the chief executive, said: “As yet there is little evidence to show that private sector funds will be available on the scale required to fill the gap, within a reasonable time scale, and on terms which meet colleges’ needs.”

While some big developers such as the Peaston Group see potential for buildinglease agreements with colleges, no one is yet interested in taking on the bigger risks of estates managem ent.

Tom Jupp, principal of City and Islington College, said: “The whole thing is a government sleight-of-hand, to get something out of the private sector without addresing the real problems.”

Roger Ward, chief executive of the Colleges’ Employers’ Forum, said: “I predict that the majority of colleges will get no help from PFI, in which case they are in deep trouble.”

The forum is to hold an emergency conference on funding of member colleges in the new year, in advance of which it will carry out a speedy but detailed survey of member colleges and the prospects for the PFI market, he said.