A record pound;1.2bn investment programme for colleges unveiled by the Government this week is tied to demands for stronger links with employers.

Announcing the reforms at the annual meeting of the Association of Colleges in Birmingham, Education Secretary Charles Clarke said that signing up employers was as important as signing up students.

But too many colleges were failing to make the necessary links. Despite a significant presence, employers still lacked a powerful enough voice in the “supplier dominated” market, he said. “Their presence in half the colleges is not significant enough.”

The Government’s reform programme is spelled out in the strategy document Success for All which offers colleges a “real terms” increase of 19 per cent over three years. In return, Mr Clarke is demanding significant improvements in quality, student performance and standards of teaching and leadership.

Achievement targets to be set shortly will give excellent colleges the greatest rewards, while poorer colleges will be given more limited support aimed at improving their performance. The proposals were, he said, “a radical invest and reform package and a once-in-a-generation opportunity”.

Mr Clarke won applause from the AoC. Chief executive David Gibson said: “It is the most generous settlement that we have had in living memory. Just as important is the commitment that the Secretary of State has shown to FE.”

In addition to the pound;1.2bn new cash, more than pound;100m cash for the Teachers’ Pay Initiative will be consolidated in core funding - giving the employers scope to resume negotiations with the unions. Cash under the Standards Fund would also be consolidated, taking the effective increase to around pound;1.5bn.

The association had argued for a pound;2.5bn three-year increase. However, this had included wider demands such as money for adult and higher education. The Clarke package, tied to the more limited Success for All agenda, had given the colleges at least two-thirds of what they had asked for. Mr Clarke also promised more cash soon to back closer FE-HE links.

Most of the Success for All reforms won the backing of colleges during recent consultations. They include measures to raise the number of fully-qualified teachers, managers and leaders. A teacher-training programme is starting this year and will focus on science, construction, business studies and the use of IT across the curriculum.

Equally important for colleges is the commitment to slash red tape and paperwork and introduce three-year funding agreements. The reform package brings with it a programme of devolution to remove wasteful bureaucracy, which Mr Clarke described as “the biggest blockage to productivity”. He said: “The sector has suffered from under-funding and excessive bureaucracy. The Government is putting this right.”

In return for new development plans every college will get an extra 2 per cent next year. Those who reach the target will get 2.5 per cent and those who exceed them will get up to 3.5 per cent for each of the three years. In addition capital spending will go up by pound;400m - 60 per cent.

But Mr Clarke warned of tough sanctions against under-performing colleges which he initially expected to number around 10 per cent of the sector after 15 of the first 105 colleges inspected in 20012 were judged inadequate.

While the quality of lessons and standards of leadership were high, there was still much improvement needed, he said. Out of 105 colleges inspected this year, 15 were inadequate and 47 required partial re-inspection.

“We must recognise that this is not a satisfactory state of affairs. We need to concentrate a major part of our energy on raising standards,” he said. In a highly conciliatory speech, however, he said that the Government recognised that it had to share some of the blame for failing to act quickly.

“I am not under-estimating the task and I acknowledge that we have all made mistakes.”