The latest is from Toll Bar School in Grimsby, which is offering 20 driving lessons worth pound;250 free to pupils who choose its sixth form for their A-levels.

It is the latest in a long line of inducements, ranging from free uniforms and knives for trainee chefs to pound;1,200 bursaries for students of exceptional talent.

The last government refused to stop the practice, saying it would not interfere in free-market decisions. Labour shadow ministers were highly critical and it was widely expected that David Blunkett, the Education and Employment Secretary, would ban inducements.

But the Department for Education and Employment has ruled out any action. “It is up to the schools how they spend their budgets,” a spokeswoman said.

The reply has angered many in the post-school sector who say it does not reflect the Lifelong Learning Green Paper’s call for “greater efficiency through rationalisation”.

College and education authority employers are desperately trying to piece together an agreement on co-operation and collaboration. They say they expect a lead from the Government.

John Brennan, policy director at the Association of Colleges, said: “Students must make choices in terms of their own needs. Offering them cash will distort these choices.”

Graham Lane, chairman of the Local Government Association, condemned the driving lessons offer. “The school has been funded to provide education, not driving lessons,” he said. “A student’s choice of institution should be bound up in the nature of the course rather than financial support.”

Toll Bar School is hoping to halt the exodus of academic 16-year-olds to nearby Franklin College. The offer of 20 free driving lessons is aimed directly at colleges as it is only open to students at Toll Bar School or those coming from other 11-16 schools in the area.

Headteacher David Hampson said: “Only 50 per cent of the 146 students invited to stay on in our sixth form are doing so, while others are choosing to go elsewhere.

“Many students said they felt pressurised by having to take A-levels and learn to drive at the same time, so we decided to build it into the timetable and give them an incentive to stay on with us.”

But Peter Newcombe, principal of Franklin College, is angry about the move. “What is education coming to when young people are being given money for driving lessons? Many schools in the area are underfunded, yet this school is allowed to use its budget as an inducement,” he said.

Other inducements include Teesside Tertiary College’s offer of pound;1,200 to pupils with exceptional GCSE grades. Its new principal, Stuart Ingleson, says he is reviewing the incentive scheme.

“We are looking at why we do it, whether we should keep it and which students it should target. At the moment it is mainly available to A-level students, yet we produce a lot of good plumbers and sports stars, so I felt the awards should be reviewed,” he said.

Sandwell College in the West Midlands offers free uniforms and knives to catering students, while those studying art and design qualify for free carrying cases and materials.

Principal Douglas Keith insisted this did not stop collaboration with local schools. “It is unlikely that schools could offer pupils these materials, and it could affect their choice of institution, but I believe pupils should progress post-16 in the environment which best suits them.”