The Further Education Funding Council should be abolished and replaced by regional bodies in order to replace cut-throat competition with collaboration between colleges, say researchers from the London University Institute for Education.
A controversial discussion document, which insists that only regional funding and planning can create an integrated national post-16 education system, will add fuel to the debate over the funding of FE.
The issue has come to new prominence with the launch of a fundamental review of the complex mechanism used to finance further education since colleges left local authority control in 1993.
That review, launched by the FEFC, coincides with the Department for Education and Employment's examination of possible routes to a common form of funding for all providers of post-16 education and training, including schools, colleges and TEC-funded organisations.
The Institute's paper, titled The Formation of a National Sector of Incorporated Colleges: Beyond the FEFC Model, argues that the efficiency drive forced on the sector by the present funding mechanism is leading a significant number of colleges "to the point of destruction".
Its authors, Norman Lucas and Ken Spours, predict a period of upheaval "marked by mergers and possible college closures". They claim the instability will increase as the FEFC comes closer to achieving its goal of "convergence" - ironing out historical differences in college funding and ensuring every institution earns the same for providing the same qualification.
Under the present funding system, colleges have been forced by tough growth targets to compete with each other and with school sixth forms, the paper says. In the process, they are expanding provision for school-leavers hoping to go on to university and for adult learners, they are jeopardising their vocational training role.
The paper proposes the creation of a system of regional bodies encompassing government offices and FEFC regional councils, funded directly from the DFEE rather than the FEFC.
The framework would bring together local post-16 providers to decide regional priorities and targets for participation, achievement and progression, with an emphasis on collaboration rather than competition. The move would see colleges forging stronger partnerships with each other rather than turning to partner universities and risking a loss of vocational mission, the authors suggest.
They claim the structure would create greater local accountability, and propose strong links between college governors and the new regional bodies.
The paper also proposes a reformed funding mechanism based partly on cash per student rather than cash per qualification, although it is understood that the review group examining the current system has no plans for radical change.
Mr Lucas claimed the strategic role of FE had been "lost in the scramble for units". It had ended up fragmented, with colleges battling it out on their own, he said. Only local co-operation based on regional planning could restore a clear national identity for the sector.
The Institute paper would find no favour with ministers, but bears a close resemblance to Labour party proposals for FE funding. The party does not advocate the abolition of the FEFC, but proposes devolving a proportion of the funding council's budget to its regional committees.
It would also set up lifelong learning forums, including representatives from training and enterprise councils, local authorities and colleges, to devise regional education and training strategies.