The Learning and Skills Council has confirmed the scale of the pressure on its budget in 2005-6 and has outlined some of the choices that have to be made as a consequence. The letter from LSC director of resources, David Russell, to college principals makes it clear that a 4.3 per cent cash increase translates into a substantial cut in adult learning places.

The available funds will be spent on higher priorities including a 10 per cent increase in spending on 16 to 18-year-olds, compared with the 2004-5 budget. Smaller spending increases on low-skilled adults will mop up a higher share of available adult funds, resulting in an overall cut in more than 200,000 adult learning places. This much is clear.

The LSC and ministers have both made much of the pound;1.1 billion increase in spending on colleges in the past three years. Funny this. The Government used to announce money in advance and was occasionally criticised for spinning spending announcements when the reality was that the current budget barely changed. These days, government press releases focus on expenditure increases delivered in the past. For colleges, it is the same money in both cases.

In the first half of this decade, there was a large increase in cash spent on colleges. This won’t continue and, even now, the rate at which spending has increased has slowed dramatically. For colleges and their students, the problem is that government policy has stepped up the rate of expansion through programmes such as education maintenance allowances and the level 2 (GCSE grade A-C equivalent) entitlement. The promises simply do not match the money, which is why adult learning is being squeezed so hard.

Other government policies have soaked up the rest of the cash: ambitious expansion targets delivered by colleges; workforce reform and staff development; better employment rights for part-time lecturers; quality improvement; access to buildings for disabled students; more engagement for employers; wider participation and neighbourhood renewal. You name it, colleges have done it.

The policies themselves are not the problem; it’s the money available to deliver them. If the Government does not want to spend the money necessary between 2005 and 2008 to sustain these successes, something will have to give.

The difficulty for colleges in setting their 2005-6 budgets is that, in many cases, the choice has been taken out of their hands. Colleges have proved themselves capable of delivering a wide-ranging reform programme but are still not trusted with the information they need to make decisions. The soft-pedalling on fees policy in the period since the skills strategy and the optimistic noises made in official announcements about 2005-6 funding have left many colleges with few choices in setting their 2005-6 budgets.

The Government will get less value for its money than if colleges had been engaged more effectively earlier. As it is, college governors and managers are being forced to make budget choices in an indefensible situation.

So where next? The 2005-6 budget will rightly dominate other considerations for most colleges in the short-term. Once that is sorted out - no easy task, remember - the challenge of 2006-7 will emerge. People at the top of the LSC can explain - and have explained - how a 7 per cent cash increase in their 2005-6 budget translates into a 4 per cent cash increase for colleges in 2005-6 and how this, in turn, becomes a 3 per cent cut in adult learning funding. So far, so good. But what will happen with the 2.8 per cent increase in the LSC budget for 2006-7?

Will there be new money for the initiatives scheduled to come on stream or will current budgets be raided? If so, the logic of the numbers is a much larger slice taken out of adult learning and an end to expansion in 16-18 participation.

The longer-term perspective on this is that the Department for Education and Skills did not provide sufficient money in 2002 to fund its Success for All programme. A large cash increase was promised in 2002. By and large, this has been delivered - short of the odd pound;100 million. But this was not enough for the targets set at the time and the expansion and reforms that government wanted to put in place.

This shortfall has left the LSC struggling to contain expenditure within its income for at least a year and resulted in this year’s budget crunch.

This has created a weak foundation for the next budget cycle, which started in 2005 and ends in 2008. The Department decided the figures for this budget in the 2004 spending review. It decided - for reasons not altogether clear - to spend its growth money on schools, universities and childcare.

2006-7 will be the year when the under-funding of targets in the earlier review catches up on the poor settlement handed out last year. There is a chance to take a different approach in the 2006 spending review which will set the budget from 2007 to 2010. But this could be too late. The Government has a few months to take action to prevent a meltdown of its policies.

Julian Gravatt is director of funding and development at the Association of Colleges