A paper by managers at Lewisham College in south London claims further education will soon begin to suffer unless the Further Education Funding Council treats urban colleges differently from those in the shires.

The discussion document - sent to MPs, the FEFC and other principals - calls for weighting to be built into the current system to create a level playing field.

The authors of the report “Lewisham not Lewes - Profligate Colleges or Penalised Students” say that comparing a college which serves Britain’s worst youth unemployment area with its wealthier West Sussex counterpart makes no sense.

The FEFC’s funding formula, they suggest, concentrates mainly on the relative costs of the curriculum in different locations and pays only a little attention to “external influences”.

Colleges in poorer areas are hit hardest because the FEFC cash they gain in compensation for remitting fees of poorer students is less than the tuition fees charged by colleges in wealthier areas. Another problem is the failure of the funding formula to take into account differences in study time needed for courses according to students’ previous educational achievements.

A further difficulty is the link between funding and the retention of students those struggling financially are less likely to stay, so reducing their college’s income.

The Lewisham paper proposes a new weighting mechanism and banding system to reflect relative poverty levels. To avoid giving rewards for inefficiencies and poor service at high-cost colleges, institutions would only qualify if they could demonstrate high standards and inspection grades.

Lewisham principal Ruth Silver said changes were needed to avoid “compounding social disadvantage” of the sort experienced by the college’s own students.

An FEFC spokeswoman said one of its committees twice considered the weighting issue and concluded there was no evidence to support the case for differential funding.