A furious row has erupted between local education authorities and ministers over national grants to encourage young people to stay on in education beyond 16.

The LEAs have been responsible for administering the pilot education maintenance allowance schemes, processing applications, assessing eligibility and making payments.

But now education minister Margaret Hodge has decided that when the scheme goes national the LEAs will be stripped of their administrative role. Instead, this will be carried out by a single provider at national level.

She told the Local Government Association: “Our view is that it makes more sense for the basic EMA administrative functions to be vested in one body rather than in many. For a truly national scheme, we need to minimise the risk that young people and schools and colleges will receive a different service depending on where they are situated.”

This has been met with derision by the LGA. An all-party letter has gone to the minister, warning that the decision risks jeopardising the scheme. Graham Lane, chair of the LGA education executive, said: “All of us are absolutely furious. I have never seen our members so angry. They seem to think one size fits all. Haven’t they learned anything from the Child Support Agency, Capita, or the individual learning accounts?

“They seem to want it run by somebody like American Express or Diner’s Card. It will be like a call centre, totally impersonal.

“Where will people get advice from when they are at their most vulnerable? They are 16, they have just learned to handle money for the first time. All of this is so insensitive. The people who will suffer will be the young students.”

One-third of education authorities are delivering maintenance allowances on a pilot basis. More than 140,000 young people have benefited from the scheme: students receive a means-tested pound;30 a week to help them stay on in full-time education. They have to sign a learning contract with their school or college.

EMAs have been very successful in improving retention and attainment. Young men from deprived backgrounds, in particular, have been encouraged not to drop out. The Government has decided to roll out the programme on a national basis from September 2004, a decision which has been universally supported.

The Association of Colleges said it would work with whoever the Government chose to run the scheme, either LEAs or a national provider.

John Brennan, FE director of development, said LEAs had not been “uniformly superb” in delivering the scheme: some had been dilatory in informing colleges about it, or had spent little on publicity.

But two points were critical. Whatever admin system was chosen it had to be efficient and effective, and not put an unreasonable workload burden on colleges.

The crucial issue if a national provider was chosen was how the learner was handled. They had to be able to find out easily what was available, they would need guidance about how to apply and to understand whether they were eligible. “Some will need help that involves face-to-face contact.

“If it is a national provider there must be proper arrangements to deal with these issues. There has to be a local presence. If they want colleges to handle all of this they would have to be properly financed.”