The head of the FE funding body has said it has already bailed out 80 colleges at risk of financial instability and warned that even the best may be underestimating the risks.
Geoff Russell, chief executive of the Skills Funding Agency (SFA), told the audience at the Further Education Mergers, Confederations and Shared Partnerships conference that the likely scenarios over the next four years would make the cuts made by colleges this year look like a "comparative picnic".
He said the 5per cent adult learning cut, which took pound;240 million out of the budget, put 80 colleges in a position where they needed extra support from the funding body to avoid becoming "financially unsatisfactory".
"So if the Treasury takes 5 or 6 per cent or more per year out of the adult budget over the four spending review years, and funding for 16 to 19 remains flat or reduces, the current year challenge which we managed by redistributing money from better managed to poorer managed colleges will be a comparative picnic," he said. "Under most of our scenario planning, if colleges do not take action, a very significant proportion will become financially unsatisfactory.
"So I recommend that the sector takes action - and I do mean now. This advice is wasted on the astute, of course, as they are already taking action, but even they may not realise how quickly they need to move."
He said private providers were reacting more quickly, because the SFA could influence them by raising the minimum size of its contracts, forcing them to work together in collectives or mergers, and thereby gain economies of scale.
"For colleges, influencing is a bit harder as the relationship is different," he said. "I am not persuaded that all of them are responding as quickly as they need to."
Mr Russell said colleges needed to do more to work together to reduce costs. "I believe we are spending too much on factories and not enough on production," he said.
But he said the SFA itself would also shrink in cost, as its predecessor's planning role withered away and it became purely a distributor of funds and a regulator.
The funding body was also working with the Association of Colleges on a pound;15 million project to develop shared services to help colleges become more effective as well as cheaper, he said.
Mr Russell also praised the progress of FE in recent years. "While we face difficult times, we often fail to sit back and appreciate what we are achieving," he said. "I genuinely believe that the further education sector has reached a new level of self confidence - and is starting to punch its weight in the education landscape."