Jobs and programmes in deprived areas are now in jeopardy after payments from the European Social Fund fell short.
The reduction, totalling almost Pounds 27 million, means projects financed through the fund will not get all the cash allocated to them. Those which have already received grants may have to pay some money back, causing a knock-on effect on future schemes.
The funding cut comes on top of severe cash-flow problems already faced by training groups because ESF money is paid in arrears - sometimes as long as two years after projects have begun.
The repayment threat prompted Elizabeth Hoodless, executive director of Community Service Volunteers, one of the country's major providers of ESF-funded training, to call for judicial review of the way the Government administers the programme.
Labour training spokesman Stephen Byers who wants the Government to compensate affected groups, claims hundreds of training places are at risk. He said: "It is bad enough that these organisations have had to wait since 1994 for the money they have already spent, but this simply adds insult to injury."
ESF is used in Britain and other European Union countries to finance job training schemes for the long-term unemployed and for minority groups. Colleges and voluntary organisations are the key providers of training.
Payments now going out from the ESF, which come from Brussels via the Department for Education and Employment, are for projects run in 1994. However, since that date the value of sterling has fallen against the ECU - the currency unit used by the European Commission for all financial transactions - so the grants are worth less than anticipated.
The Pounds 27 million deficit is being shared among all projects so that each loses 5 per cent of its original allocation.
Anne Weinstock, chief executive of major voluntary-sector training provider Rathbone CI, said her organisation stood to lose up to Pounds 15,000 as a result of the cut and faced losing a member of staff.
She said: "We are already working with the least able and most vulnerable people in society under pressure to achieve outcomes and with funding paid in arrears. Now we are having money taken from us for training we have already delivered. It is as if somebody is raining bricks on us."
The loss of cash through exchange rate changes has highlighted afresh problems faced by colleges and training groups because of the ESF system of payment in arrears. The Further Education Funding Council and the Department for Education and Employment are negotiating ways to improve the ESF system with the Commission.
Ms Hoodless of CSV urged the Government to follow other EU countries where governments pay out ESF grants before Commission cash comes through.
Ironically the DFEE is poised to launch a nationwide advertising campaign highlighting cash available in the social fund.