Colleges warn they could be forced to cut under-16 education, adult courses and vocational training as funding chiefs prepare to announce a new regime focusing on "mainstream learning".
An internal memo to regional directors of the Learning and Skills Council, which has been seen by FE Focus, shows there will be cuts resulting from the cash settlement for further education announced by Charles Clarke, the Education Secretary.
The document, issued by the LSC's national office, says "these reductions will have a widespread impact and will not go unnoticed".
The cuts will apply "across all budgets that do not directly deliver mainstream learning locally".
John Brennan, chief executive of the Association of Colleges, says its members already subsidise vocational teaching for 14 to 16-year-olds studying part-time in FE. Mounting financial pressure may force them to pull out altogether, despite the Government's policy of admitting more schoolchildren for vocational study, he says.
Rob Wye, director of the LSC's chair and chief executive's group, stressed that funding for 14 to 19-year-olds is the responsibility of the Department for Education and Skills. He said: "You've got to engage schools, colleges and work-based learning providers, but there's a big issue about funding.
You've got to accept there's a cost attached to this."
Vocational courses at level 3 (A-level equivalent) - which industry regards as essential to provide skilled workers in many trades - could be cut as colleges are forced to concentrate on level 2 (GCSE grade A to C equivalent).
Dr Brennan said: "It will mean adults getting less help. It will affect their ability to participate.
"Regarding the pre-16 initiative, we have been saying that this area is not being funded already. If we have a situation where colleges are told 'you got pound;300,000 for this last year and you are getting pound;200,000 this year', when they weren't getting enough funding for it in the first place, some are going to say 'sorry but we can't do it'. Some would stop doing it altogether."
There was an initial funding shortage of pound;433 million, which has been partly alleviated by a top-up of pound;113m from the DfES.
The LSC proposes to trim pound;205m in "non-participation and centrally-held budgets". While the document refers to savings in 20056, the LSC admits 20067 could be tougher.
The memo says: "Budgets are very tight for 20067. Our initial estimate is that we will only have enough funding to meet the unit price increase for inflation."
The LSC's planning is based on an "assumption" that colleges will be able to raise an increasing amounat from fees - although it is phasing this in to test the market. Fees are expected to raise pound;16m, and pound;70m of savings are expected to come over the next two years from cuts to the funding of underperforming colleges.
Colleges are also expected to raise more cash from employers, but Ivan Lewis, the lifelong learning minister, admitted in the House of Commons last week that "the department has not commissioned any research specifically to investigate the willingness of employers to pay for training".
The document nevertheless claims "the overall position for 20056 is a positive one", referring to the extra pound;648m given to the LSC to improve course quality and the number of students.
Barry Lovejoy, head of the colleges department at Natfhe, the lecturers' union, said: "We will be seeking an urgent meeting with the LSC and the DfES. If all this is true it will have serious implications for such things as pay and industrial relations."