The Teacher Training Agency has decided to withdraw funding for teacher training at the University of Derby after inspectors found that it was failing to assess students properly. The course now faces closure and Derby is taking legal advice.

The university thus becomes the first casualty of the controversial decision by chief inspector Chris Woodhead to reinspect all primary teacher-training courses (known as the “primary follow-up survey”).

In 1996, Mr Woodhead’s own inspectors judged primary teacher training to be in good shape, but he was not convinced and ordered a closer look at the teaching of reading.

The TTA’s decision on Derby will confirm the sector’s worst fears that the follow-up survey can bring fatal financial consequences.

After its initial inspection, Derby was judged to be “sound - its shortcomings, if any, balanced by positive features”. But when it was reinspected under a different framework, it was given two fail grades on judging students’ performance and on the way students are taught to teach children to read.

Three other institutions - Durham University, Warwick University and Bath College of Higher Education - were also found to be failing the second time around on their assessment of students. They had all been awarded exceptionally good grades the first time around.

The TTA board’s decision to take action against Derby rather than the other three reflects the fact that it was judged satisfactory rather than good the first time around, and also because inspectors also found weaknesses in reading.

Derby will now have to submit an action plan to the TTA within a month and will be inspected again by OFSTED within a year. If it has not progressed, the TTA will withdraw accreditation and funding and the department will close.

Although these procedures are lengthy, allowing the institution plenty of time to improve, Derby will actually suffer immediately as any provider which is under threat is automatically placed in the lowest category for the allocation of student numbers - so it will lose money straight away. The other three universities have been given a year’s grace.

The decision was made by the TTA board on December 3, but Kate Roper, spokeswoman for Derby University, said the university was told a week later. She said: “In our opinion, the TTA’s action is wholly unreasonable. We are now taking legal advice.” Earlier this year, the University of Warwick took legal advice when it looked at risk of punitive action and was told that it had a “cast-iron case” on the grounds that it stood to lose money on the basis of an inspector’s subjective judgement on the performance of one or two students.

The inspectors judged Derby’s reading course to be undemanding. On assessment, the report says that “two students from the sample . . . who were considered adequate by the provider, were found to be poor”. In total, inspectors’ judgments did not agree with Derby’s on three students. Derby is likely to argue that it is unjust to fail a whole course on these grounds.

At the same board meeting, the TTA also decided to begin withdrawal of accreditation and funding from a school-based teacher-training consortium, the Coastal Confederation. This is the first of the secondary teacher training courses to be judged failing. It received five unsatisfactory grades in geography, so that just about every aspect of the geography course was condemned. The University of Greenwich has also been given unsatisfactory gradings in secondary history, maths and English, but no decision has been taken about its future.

Chris Woodhead told The TES: “The TTA’s decisions vindicate OFSTED’s determination to focus inspection on students’ training for teaching literacy and numeracy. Nothing is more important to the future health of the profession. ”

By next July all 68 primary teacher training providers will have been reinspected. The TTA has confirmed that this evidence will determine positions in the teacher training league tables in 1999.

But Ian Kane, chair of the Universities’ Council for the Education of Teachers, called the TTA’s action “very regrettable I particularly since if follows from a survey not commissioned by the TTA”.