Business secretary Vince Cable has raised the prospect of ending public funding for A-level equivalent qualifications for adults.
Mr Cable is understood to have told Lib Dems that pressure on adult skills cash, which faces Treasury proposals for a real-terms cut of 40 per cent over four years, could result in level 3 funding being withdrawn.
He is also believed to have raised the possibility of an improved system of loans to draw in individual investment in skills, and of levies for industry to compel them to pay for training.
The Organisation for Economic Co-operation and Development, which last week completed a major international review of vocational education, has urged the UK Government to consider levies, and they are already in place for the construction industry.
Mr Cable outlined some of the possibilities at a debate organised by the Learning and Skills Network, but his Department for Business, Innovations and Skills (BIS) is expected to be among the last to settle its budget ahead of the spending review on October 20, partly because it awaits the outcome of Lord Browne's review of HE funding.
Mark Corney, an independent consultant in FE, said ministers may be proposing to remove direct public funding and to offer adult students university-style loans to pay for those taking a first level 3 course instead.
"It could well be that public funding for adult education in basic skills and first level 2 qualifications could continue, but level 3 might be turned into income-contingent loans," he said. "The issue has really dawned on officials and ministers in BIS. It would be quite radical, as long as you don't ask people to pay upfront."
Such a plan would fit with Mr Cable's expressed desire for a "revolution" in adult education, with distinctions between academic and vocational pathways swept away. He said "unhelpful cultural prejudices and vested interests" against vocational education and apprenticeships were "wrong, completely wrong".
The previous Labour government similarly focused more of its funding initially on level 2 and basic skills through its flagship Train to Gain programme because research showed that these had less effect on individuals' earning power. At level 3, greater earnings are thought to warrant more of an individual contribution to costs.
Chris Banks, the former Learning and Skills Council chairman who conducted a review of fees in FE, said he supported greater provision of loans.
"Our report said that if you expect people to make a contribution, quite a lot of people will need help making the payments," he said. "There aren't many people on average incomes who just have pound;1,000 or so, waiting to decide what to spend it on.
"Loans could mean that learners get the benefit but also it ensures more money flows into the FE sector, which is particularly important when it's under such pressure."
Editorial, page 6.