Once again it would seem that Gillian Shephard has lost out to the right-wing ideologues in her party. The hard-nosed marketeers are engaged in an unholy alliance with their bete noire, Kenneth Clarke, which has the Education and Employment Secretary caught in the middle. Not for the first time, Treasury-led cost-cutting has found a political home in the free-market fantasies of the Tory Right.

The issue is vouchers for 16-19 education. Mr Clarke seems anxious to encourage greater price competition between providers of 16-19 education to cut costs. The Right wants a fully fledged marketplace. Output-related funding for school sixth-forms is on the cards. The long-term aim - which looks set to become a Tory manifesto pledge - is vouchers, suitably dressed up as enhanced choice for students and greater institutional responsiveness.

We already have a fiercely competitive market for 16-19 students and its problems are readily apparent: fragmentation and limited strategic oversight; a lack of impartial guidance causing inappropriate course choices and subsequently high drop-out rates; wasteful duplication of low-cost, high-volume courses; and limited accountability to the wider community.

Vouchers will exacerbate all these problems and bring others in their train. The Coopers Lybrand study into vouchers for 16-19 education found that the cost of a cash-based system could be up to Pounds 535 million. To meet this cost - which includes a subsidy to public school sixth-forms - would entail strictly limiting the value of a voucher.

In the final analysis, schools and colleges could go bust. But then that’s what free markets are about: capturing market share and putting your competitors out of business.

There is another important question: how can the interests of other stakeholders in tertiary education - employers and local communities - be secured if the only purchaser is the student? As Professor Peter Scott, director of Leeds University’s Centre for Policy Studies in Education, has put it, perhaps a little unkindly to young adults: “Only the most enthusiastic free-marketeers are willing to allow these crucial interests to be mediated through the naive choices of teenagers.”

Moreover, the Government’s agenda is based upon flawed assumptions. The Department for Education and Employment study into the relative costs of 16-19 education and training was widely seen as an attempt to prepare the ground for vouchers by establishing that cost divergences between providers were not as wide as previously assumed - and, indeed, that training and enterprise council programmes were cheaper than those provided by colleges.

Colleges vociferously criticised this study. It is clear that no consensus exists on the figures or on what constitutes a secure basis for moving to greater equity and consistency of funding. Yet the Government is determined to press ahead.

Doubtless, too, Sir Ron Dearing, the chief curriculum adviser, will be perplexed that a major change in the funding of post-16 education will take place before his proposed changes have come into effect.

Labour believes that the curriculum and the learning needs of students must determine the structure and funding of institutions and not vice versa. Vouchers will not raise standards of participation and achievement. To improve staying-on figures, tackle high non-completion rates and raise standards, we need curriculum reform, specific policies to motivate and encourage disaffected young people, and effective partnerships between providers to ensure that the full range of high-standard learning opportunities is available to learners in any locality.

Labour’s policy proposals are designed to meet these objectives. Our Lifelong Learning paper proposes new forms of partnership in 16-19 education. Firstly, we will establish local Lifelong Learning forums to bring together providers for sensible and cost-effective collaboration - reaching out to the local community, employers and higher education institutions.

Secondly, we will develop a new regional tier of governance by strengthening and democratising the Further Education Funding Council’s regional committees. These committees will provide frameworks for partnership and co-ordination, bringing together industry and commerce, LEAs, and further and higher education. They will undertake strategic foresight exercises and control a proportion of funding for distribution according to specific local and regional circumstances, as well as for the delivery of key national objectives.

Thirdly, we will reform the Careers Service to strengthen the advice given to young people, requiring providers to give access and facilities to the service and ensuring that consultation takes place with all key stakeholders.

The National Targets for Education and Training aim to get all young people to at least national vocational level 2 (GCSE equivalent) with the range of key skills such as literacy, numeracy and information technology. Everyone, except those with special educatiional needs, should be able to reach this level. Our review of post-16 funding will underpin this commitment by ensuring that existing public resources are used to maximise equality of opportunity.

Bryan Davies MP is the shadow further and higher education minister