Phil Willis, Liberal Democrat education spokesman, says he is referring to the National Audit Office plans to make pound;25 million savings from funds set aside to help Connexions partnerships.

Anne Weinstock, director of the Department for Education and Skills’

supporting children and young people group, announced the need to make nearly pound;35m in savings in a letter to Connexions partnership chief executives on February 13.

She proposes finding pound;25m of this through a value-added tax pot - a pound;40m fund set aside from the DfES budget to cushion the VAT burden on Connexions partnerships.

Mrs Weinstock is also asking partnerships to find ways of reducing their VAT liability and becoming more tax efficient. She urges them to explore the potential for local authorities, which operate under different VAT rules, to act as lead body.

“We have no option about finding the pound;25m - we want to find the best way of avoiding front-line delivery becoming disrupted,” she says in her letter. But Phil Willis said he could not understand how the Treasury sanctioned this as a saving.

“It appears that income that was destined for the Treasury which is no longer going to the Treasury, is saving another government department some pound;25m,” he said.

He added: “This is a classic case of the Treasury on the one hand urging businesses not to avoid tax, yet on the other expecting one of its major organisations to avoid tax. It’s hypocrisy.”

Career guidance chief executives say news of the cuts came out of the blue.

The boards of Connexions partnerships have been given until March 19 to report back on their capacity to make structural changes to become more tax efficient.

But the head of one careers guidance service said: “The time scales are ridiculous and won’t work, regardless of which model is decided.”

He said there was concern that this would have most impact on the Connexions partnerships which deliver services through sub-contractors.

Connexions was launched three years ago as a one-stop-shop support service for 13 to 19-year-olds. It was built on the legacy of the Conservatives’

privatisation of careers services, which had resulted in the service operating differently in different parts of England.

In some areas existing youth and careers services became Connexions. In others, private companies were sub-contracted to deliver services.

Connexions was criticised recently after a survey found ordinary pupils were missing out on careers advice as the service tried to meet targets for working with disaffected young people.

Nearly a third of pupils aged 14 and above say they have received no careers guidance from their school or college.

The chief executive of one careers guidance provider said it was not yet clear what effect the cuts would have on front-line services. But he said one concern was that it would apply unevenly to different Connexions partnerships. “It does seem a pretty odd way to proceed, to be told that a service has to cut millions of pounds from its budgets, and to do so on the basis of whether one service is more tax efficient than another,” he said.

A DfES spokeswoman said: “This is not a cut in Connexions’ core budget.

Some transitional funding which was provided to help Connexions partnerships respond to changes in VAT status has now been stopped.

Partnerships were always aware that this funding was transitional.”

She said the decision about how best to become more tax efficient and what structure is appropriate for each partnership is the responsibility of the partnership board, not the DfES.

“It will need to take into account how best to enable engagement in the integration of services through children’s trusts, which are being developed as local authority-led organisations.”