Senior Government advisers are privately blaming bureaucratic bungling and lack of communication between the Departments of Employment and Education for a crisis in the Youth Credits scheme, due to start next month.
The scheme, an extension of training credits which were intended to give 16 and 17-year-old trainees the right to buy the courses they chose, is seen by many as a first step towards a voucher system for all 16 to 18-year-olds.
But it has now emerged that as many as 70,000 new trainees could be left without college places this autumn because an estimated Pounds 47 million has been "lost" as a result of the control of cash being switched from Education to Employment. The Youth Credits scheme is to be run by the training and enterprise councils which come under Employment.
Top-level talks between ministers and officials from the further education and training sectors are under way to try to sort out the funding rules and find the cash.
A spokesman from the Further Education Funding Council said: "As far as we are concerned, the cash has been handed over to the TECs." But local TEC leaders say they have not seen the money.
The fiasco comes amid signs of growing disagreement between the Education Secretary Gillian Shephard and Employment Secretary Michael Portillo over plans to extend the scheme to all 16 to 18-year-olds, including sixth-formers.
While the Employment Secretary is said to be keen on vouchers, Mrs Shephard is not. Sources close to the DFE this week said: "She has gone cold on learning credits."
Learning credits, to all intents and purposes vouchers, were proposed in the Competitiveness White Paper last May and are due to be piloted next year.
A further sign of waning enthusiasm for learning credits on the part of education ministers is their failure to respond to a feasibility study by consultants Coopers and Lybrand. The report has been with ministers since before Christmas.
According to the Association for Colleges, all colleges stand to lose cash this September as a result of students switching to the Youth Credit scheme. Colleges this week estimated losses of between 500 and 1,200 students.
From April 1, the FEFC will no longer fund part-time courses, which will all be covered by youth credits. Colleges must apply to TECs for the money. However, there is disagreement over how many will qualify. TECs and the Department of Employment put the figure at 120,000 college students. The FEFC and DFE estimate 46,000. Attempts to resolve the discrepancy have failed because the two departments use different methods of calculation.
Chris Humphries, policy director for the TEC national council, said: "The system has crashed. It is not about blame but total confusion in a system that has gone wrong."
Another TEC official commented: "It is a department cock-up. Neither Government department knows what the other is doing. For the first time with youth credits, they are having to talk real people and real numbers."
John Dunford, vice-president of the Secondary Heads Association, said: "Schools and colleges are already responding to the market. Learning credits won't help sort out the irrational issues like those illustrated by the youth credits fiasco."
The problems emerging in the post-16 sector throw into further doubt right-wing ambitions for vouchers to be introduced for all in nursery education and will undermine their arguments within the Cabinet.
* A voucher system for four-year-olds should not be developed before existing evidence of their impact on other areas is reviewed, according to a discussion paper prepared for the Early Childhood Education Forum, an umbrella group representing 35 organisations, writes Diane Hofkins.
"Experience of the use of vouchers for post-16 training credits has produced no evidence that they have encouraged increased participation, or that they have been anything but an additional administrative burden," says the paper prepared by Julia Bennett of the Association of Metropolitan Authorities.