The Further Education Funding Council is speeding up moves to bring colleges on to a uniform budget in a policy known as convergence.
It has told colleges that most work will be paid for at the same rate by the year 2002 in an effort to end arguments about colleges being paid differently for carrying out the same courses.
The move raises new questions about how college budgets are calculated, and about how they will be adjusted to allow for work with special needs students, disadvantaged groups or the dispossessed.
At present, colleges get different levels of funding for each so-called unit of work they carry out, varying between Pounds 12 and Pounds 33 a unit.
But from 2002, 90 per cent of colleges will have to hit the average cash-per-unit, currently at about Pounds 15.75. The rest will be brought into line in the following years.
Funding chiefs have been working towards a level playing field since they took over further education in 1993.
High-spending colleges have been hit hard as they reduce their budgets to meet the average.
The new deadline for convergence means more cuts, which are estimated at 8 per cent a year for the highest-spending colleges if funding levels are to be met by the year 2000. That compares with year-on-year cuts, known as efficiency gains, across the FE sector.
The FEFC has ruled out a faster move to common funding levels because of the financial problems facing many principals: almost 20 per cent of colleges are said to be in poor financial health.
The move will, however, produce winners, with low-spending colleges being saved from some of the cuts to bring them up to the sector average. And it raises the prospect of renewed debate over the funding council's tariff, the mechanism by which it divides courses and other college work into units to calculate funding.
John Brennan, policy director of the Association of Colleges, said he favoured a move to convergence within three years, but warned the issue could not be separated from ever-deepening cuts across the college sector.
He said: "Once you set up the system, it's hard to produce any kind of convincing arguments against convergence.
"Obviously, you can say the tariff is wrong, which is I think a better way for colleges to do it. That's why the London colleges have been pushing the argument about London costs. But the caveat is the question of the level colleges are converging at. I'm sure the question of funding as a whole will figure in our response."
The prospect of a swift move to convergence has provoked worry in high-spending colleges, however.
Dick Evans, principal of Stockport College, warned that expensive, but essential courses such as engineering, construction and science would be driven out of the market. "We did not expect the slope of the convergence to be so steep," he said.
Analysis of the FEFC proposal by colleges managers in the north-west suggests that all colleges will have to make major savings of 6-10 per cent a year, Mr Evans said. "That's bad news for everyone.
"Once we could rely on the council to provide at least 40 per cent of the costs. But many subjects will fall below that level, and courses like engineering could well find that expenditure exceeds income."