Staff of the Learning and Skills Council, which is due to be replaced within two years, claim new funding arrangements for teenage and adult education will involve too much red tape and neglect vulnerable people.
An internal consultation of the 3,200 LSC staff at the LSC revealed concerns about replacing it with two new national bodies.
The draft report, obtained by FE Focus and expected to be sent in its revised form to ministers at the end of the month, is the LSC's only response to its own demise.
Mark Haysom, the chief executive, decided it would be inappropriate for the council to formally comment on the changes, preferring instead to give staff the chance to understand what the proposals might mean and share their ideas and views on how they might be developed and implemented.
The report said: "At this stage in the machinery of government proposals, there are many areas where there is little or no detail and this has, inevitably, resulted in staff raising a number of fundamental concerns." It said the comments should not be seen as "negativity" because staff had an uncertain future, but reflected a genuine effort to make the proposals work.
Under the changes, about pound;7 billion of funding will go to local authorities to fund education for teenagers, overseen by a Young People's Learning Agency. Funding for post-19 education will be handled by a Skills Funding Agency.
The shake-up is intended to help make the funding of schools and colleges more equal for 16- to 18-year-olds by establishing a common system. Colleges have long protested it was unfair that their students could expect about pound;400 less each year than a school sixth form student.
But LSC staff said there was no planning role for the new funding bodies, which are supposed to respond to demand, so they doubted the agencies' ability to make the most of finite resources.
The report said: "Someone needs to be ultimately responsible for the `single conversation' with providers and employers. Without this, there will be power struggles between the agencies, and the learneremployer will suffer. There is also concern that smaller niche providers, employers and learners with specialist needs will be forgotten or squeezed out of the new arrangements."
Staff said it was not clear who would have statutory responsibility to provide education for people with learning disabilities and feared they could be lost in the system.
They also criticised the centralised, national perspective of the Skills Funding Agency, arguing that without a local presence it would be hard to understand the varied demand for skills in different areas.
The LSC and Department for Innovation, Universities and Skills refused to comment on the detail of the leaked report.
Last month, the changes were also criticised by Peter Pendle, chief executive of the Association of College Managers, who said they were incoherent and political measures with no benefits for students.
The LSC was the UK's biggest-spending quango when it was formed in 2001, replacing the Further Education Funding Council.
`If it's not broken, why change it?'
The biggest union representing Learning and Skills Council staff came to the quango's defence this week, saying it shares many of the concerns raised in the leaked report.
The Public and Commercial Services Union said that, while staff were concerned about their own future, there was a genuine feeling the LSC has been succeeding in meeting government targets.
The latest success, reported today on the FE Focus front page, was in the Skills for Life programme to improve adult numeracy and literacy, which has surpassed 2.25 million students two years before the target date.
Ruth Serwotka, president of the LSC group in the PCS, said: "Our opinion is that there should have been a single agency bringing the two things together. Stages of learning rather than age groups are the real issue.
"There are concerns about the fragmentation of all the arrangements around the number of different agencies, when it was supposed to be about simplification.
"If it's not broken, why change it? The LSC delivered on all its targets.
"There's a bit of confusion about why this change is considered necessary. All these new quangos are going to be created, with chief executives all on top-level pay: it's not what was supposed to happen."
She said staff are in the dark about how many of them will still have jobs, and even what part of the country the new agencies will be based in, making it harder to hold on to the best staff.