Further and higher education minister Alan Johnson has told FE Focus there will be no more money to bail funding chiefs out of the cashflow crisis which threatens every college in the country.
His comments came as colleges were being told, in a letter from the Learning and Skills Council, that they will have to wait for their final funding allocations for September, which were due to be announced by the end of May.
The letter, from LSC executive directors, warns colleges that their success in raising the participation, retention and achievement of learners was putting pressure on overall budgets.
They were well aware of concerns raised by providers, and had taken these up with the Government. Discussions were still in progress and "unfortunately this means we will not meet our planned date of May 31 for final allocations and contracts for the academic year commencing August 2004 ... I apologise for any inconvenience this may cause".
In an earlier letter, Mark Haysom, LSC chief executive, said to his chairman Bryan Sanderson, that he might have picked up "some noise in the press".
The FE sector and other providers had been a tremendous success, he wrote.
But finite resources had to be invested to best effect. "We are undertaking further rapid analysis of the options available to us, and the resources we have to manage success."
In the meantime, the LSC is locked in talks with Department for Education and Skills officials as it becomes clear that the record levels of FE spending are not enough to keep up with the expansion of student numbers unless colleges cut other lower-priority courses.
Mr Johnson said: "The LSC is in discussions with us. There is no more money. With 16 to 19, you are talking about statutory provision which we are absolutely committed to and we want to find a way through this with the LSC."
The LSC is already delaying payment for some existing 16-19 students and has warned colleges that their provisional budgets could be trimmed by up to 7 per cent. He was unable to elaborate on how the deadlock would be broken without further cash from the DfES, but added "We are not going to do it with a pouch of fairy dust."
Earlier, he had faced heckling as he addressed the annual conference of Natfhe, the lecturers' union, in Blackpool on Saturday, when he pointed out that more than pound;1 billion had gone towards FE in the 2002 spending review.
He said the funding shortfall is the result of colleges increasing student numbers and warned that the alternative to Labour's strategy would be the Conservatives' policy of real-terms cuts in FE. He said: "It is important to recognise that these are essentially the problems of success."
The Association of Colleges warns there will be pressure on staffing costs among colleges if they want to achieve the imposed cuts without cutting courses at the 11th hour.
Dr John Brennan, chief executive, said: "First, it is important to stress that we are awaiting a substantive response from ministers on this issue.
The Government and the LSC have told us they will be assigning final funding allocations in June.
"Second, while it is difficult to reply to the minister's comments without a full transcript of his speech, if Alan Johnson means that there is 'no more money' for non-priority learning then we are of course very concerned.
"We began warning the Government about this problem last year.
There is insufficient money for the LSC to meet all the demands the Government has asked colleges to achieve. If no solution is found, hundreds of thousands of learners could be denied opportunities in the new academic year and the skills strategy will have failed its first test."
Natfhe has a two-year pay deal with the AoC, which has been implemented, at least partially, in 80 per cent of colleges.
The deal itself depends on a performance management agreement, which includes staff appraisal, to be signed in time for year two, starting in August.
Natfhe is this week asking the AoC for firmer reassurances that this will not lead to performance-related pay, to which the union remains firmly opposed.
The pressure for a tougher line on PRP came in a conference motion from the union's London region.
The motion was passed but, privately, there is concern among national negotiators that toughening the language against PRP could provide the AoC with an excuse to pull out of a deal which many colleges already see as beyond their means.