This overruled an earlier circular which said it would not change. The total cash paid to colleges will increase by more - 6-7 per cent a year - but only if student numbers continue to grow. As ever, the Government assumes inflation of 2.5 per cent and an efficiency gain of 1 per cent.
Pay settlements of 3 per cent or more will require greater efficiency. The situation in individual colleges will vary from the national picture. Some colleges are seriously adrift from their 2000-1 targets. Others could grow faster if offered the money.
The second funding announcement in June was that there will be some phasing in of the new funding system.
This is the second delay in a year. Back in May, the department was confident that a new funding system could be in place by 2001-2. The new plan will see implementation starting in 2002-3.
The reason given for the delay is the need to minimise disruption to students. Another consideration may be the slow process of appointing LSC staff. By mid-June, the national council had filled only 55 of its 100 top management jobs. Many of the initial appointments are transfers from the Further Education Funding Council, but there is also substantial turnover at the top. This will help the LSC to differentiate itself from the FEFC.
Local skills councils have more staff in place but, in the short term, their role in funding is limited. National rules and processes need to be established before local intervention can happen. The local work at this stage is preparatory - drafting the local plans for 2002-3, consulting stakeholders and quality checking providers.
Although its start is slow, the LSC has already commissioned a nationwide scrutiny of colleges. This takes place in the summer, costs pound;7 million and is 100 per cent contracted out to eight firms. These are audit firms and they are engaged on the audit of college funding claims for 2000-1.
This is not a new piece of work but the way it is carried out is different. The auditors will report directly to the LSC on the legitimacy of these claims. To do this, they will follow a trail from the claim to the pieces of paper that verify the calculation. Every time they find an error - a wrongly completed form or failure to understand funding guidance - they are required to report this to headquarters.
The national LSC will evaluate the error and reduce the amounts it pays the college. Like parking control, the impact of errors is immediate. Unlike parking, funding rules are not posted on eight-foot signs in front of staff. FEFC funding is so complicated that it requires three large manuals, numerous technical updates and a software programme that took two years to simplify.
Funding complexity and audit stringency makes errors endemic in college funding claims. Parking inspectors pay their wages by the tickets they issue. Who doubts the auditors will do the same ?
The aim of the exercise is to keep the Public Accounts Committee satisfied but the process will reinforce the primacy of paperwork.
The new audit regime starts in colleges in 2000-1. In future, the LSC plans to extend it. This could be an interesting test of how much uniformity can be imposed. Some training schemes already have punitive audit regimes. Other institutions in the new sector haven't seen an auditor for years. Furthermore, school sixth forms have been promised no increase in bureaucracy.
This promise will be difficult to square with equity between schools and colleges. Hopefully, the merger of sectors will lead to the promotion of good practice rather than bad.
The Social Exclusion Unit suggested one way forward last year in its report on skills for neighbourhood renewal. The report noted the malign effect of tough audit regimes and recommended "smart audits" in which the Government made more use of the data in its computers to check the impact of policy.
Simpler funding and smart audits might even make more time for learning.
All this is for the future. The Council says in its corporate plans that it wants to develop long-term relationships with providers and to encourage flexibility, responsiveness and efficiency. There are many signs that this is a genuine desire but actions speak louder than words.
If your first important encounter with the new Councils is via an audit insisting on 100 per cent compliance with the FEFC funding method, then this will be a poor start to what could be a great relationship. If you're sitting on someone's back, no matter what you say in sympathy, it means nothing until you're willing to get off.
Julian Gravatt is director of finance at the City Lit, London