The Association of Colleges' analysis of figures from the Learning and Skills Council suggests funding for the priority areas of 16-19 learning and basic adult skills will fall short of what is needed by pound;20 million in the 20045 academic year.
And plans to spend up to pound;30m on courses that fall outside these priority areas will have to be shelved because the funding is not there, the AoC says.
John Brennan, chief executive of the AoC, revealed the figures at the organisation's annual conference in Birmingham this week. "These figures are extremely worrying," he said.
"We have been pointing out to Government for some time the disparity between its ambition to drive up skill levels and the resources available."
And he said the focus on adult basic skills is, in any case, too narrow. A successful economy demanded a broad range of skills.
He said: "If we are to move forward, colleges need secure and rising levels of core funding.
"Surely, colleges must be financially equipped, first to erode the pay differentials which leave many FE professionals inexplicably disadvantaged in relation to counterparts in schools and universities, and secondly to carry forward the pay modernisation agenda we all recognise to be necessary.
"Colleges support targeting of finances towards adults lacking basic qualifications, but globalisation demands rising skills across the board.
"As a nation, it is vital we maintain a comprehensive range of learning opportunities. If the delivery of a basic qualification entitlement for adults requires the withdrawal of opportunities for non-priority groups, for example, training technicians in IT, construction or health, the Government's strategy will have failed."
The AoC says colleges must not be left to carry the burden of improving adult skills alone. Apart from investment, it argues, more should be done to increase demand among disaffected groups, especially adults who had had a bad experience of school.