Responding this week to Spend, spend, spend?, the skills select committee report on the capital debacle, the Government said its policy had been fixed before the July report recommended compensation. It means a large part of around pound;200 million spent by colleges on preparing plans will not be repaid.

“The (Learning and Skills Council) has a long-standing, understood and published position of fee support for colleges developing their capital proposals. It will honour all fee support due under that policy,” the official response said.

Dozens of colleges are now without funding to secure project green lights. The Government also said no further action was necessary against the LSC’s chairman, Chris Banks, and its ruling council, which was criticised by the MPs for having “clearly failed” in its oversight role.

It said review chair Sir Andrew Foster had identified the crisis as mainly a failure of management, and that it was right that its chief executive, Mark Haysom, who stepped down, took responsibility.

But it also said ministers had not known of the problems until the programme was suspended last December. A meeting three months earlier to discuss capital risks was solely considering the impact of the recession on a small fund for private providers, it added.

Phil Willis, the committee’s chairman, said he was disappointed the Government had not accepted that it failed to prioritise funding bids properly, and that it “exonerated” Mr Banks and the council.

“But the most disappointing thing is the refusal to compensate colleges,” Mr Willis said.