It has had a fair run. Some colleges have thrived; others have come close to ruin. There has been a record 25 per cent rise in student numbers over three years as costs per head have plunged. But too many politicians and college managers have been carried away by the belief that cost-cutting automatically equates with quality.

The National Audit Office this week reports significant gaps in provision and an increase in the number of colleges in difficulty (page 23). Despite growth, increased “efficiency” and incentives, the best the NAO can say after almost four years in the marketplace is that “it was too early to say what impact this has had on college performance.”

The report of the FEFC committee on widening participation, chaired by Helena Kennedy QC, is more forthright (page 24). Introduction of market principles has increased college independence and autonomy. But there has been “wasteful competition” in pursuit of students most likely to succeed.

Its answer is unashamedly New Labour’s: “visionary planning”, students as “stakeholders” and regional and national strategies. Before rejecting this, ministers must ask where their unfettered market forces have brought FE.

Nowhere is the effect more apparent than in the dash for growth on the cheap. Colleges which exceed tough Government targets get a third of the unit costs for every extra student recruited. Those who undershoot are heavily penalised. Unfortunately, the colleges got too good at the market game. The Treasury was upset and ministers threatened to cut off the cash.

It is hard to believe that neither the Department for Education and Employment nor the Treasury realised that an Pounds 84m bill was mounting or bothered to check such costs with the FEFC until it was too late. The idea of either incompetence or some Machiavellian plot hatched by former FEFC chief executive Sir William Stubbs and perpetrated by his successor Professor David Melville to get more cash than deserved seems even more remarkable. Besides, the Demand Led Element (DLE), had been tried in higher education and was well publicised in The TES and elsewhere three years ago as “an open chequebook” from the Treasury for colleges.

The letter from Education and Employment Secretary Gillian Shephard to Tory MP Nigel Evans gives the game away (page 1). It shows that just two weeks before the threat to scrap DLE, she was exhorting colleges to pursue this route to growth rather than whinge about cuts.

College managers would be naive if they thought DLE was likely to go on much longer. But ministers may find it difficult to renege on promises accepted in good faith. As usual, a compromise looked the most likely immediate conclusion to this unseemly charade as we went to press. But that will not be the end of the matter. The original DLE contract with the Treasury included a commitment to new funding levels if growth is sustained. Now the most that colleges can realistically look forward to is an uncomfortable transitional year after settlement of the immediate crisis. and then a rethought funding methodology from Helena Kennedy’s other committee.

But whatever the outcome on funding, the conclusions of both the NAO and Ms Kennedy’s wider participation report point to “strategic planning” rather than “the marketplace” as the next buzzwords for FE.