Colleges will have their budgets slashed if they fail to meet targets for getting students into work, radical new proposals have revealed.
The Skills Funding Agency (SFA) has set aside pound;80 million to be shared between colleges which help a set percentage of students who were previously claiming benefits into employment.
A national pilot of the job outcome payment scheme will operate during 201112 and could be expanded the following year, with colleges running the risk of losing out on a proportion of their budgets.
College leaders insisted they should not miss out on funding because of factors out of their control, and warned that the proposals could encourage colleges to push students into some job sectors at the expense of others.
The pound;80 million reserved for the pilot amounts to around 2.3 per cent of the SFA's pound;3.4 billion budget. But if it is extended, colleges are expected to lose out on an even bigger chunk of their funding in future.
The targets will apply to students who were claiming either jobseeker's allowance or employment and support allowance before they started their training.
The SFA intends to consult college leaders on how the scheme should operate and how it could be extended for 201213.
A SFA spokesman said: "The intention is to give an extra incentive to colleges to respond to their local economy and community and help people into work."
The project could also be expanded for 201213 to make a portion of colleges' budgets dependent on hitting a target for the number of students who complete their apprenticeship programmes.
The skills white paper, published last month by the Department for Business, Innovation and Skills, said outcome incentive payments would "provide a simple, transparent means of incentivising colleges and training organisations to deliver wider economic outcomes".
Lynne Sedgmore, executive director of the 157 Group of colleges, said no more than 5 per cent of a college's budget should be dependent on students' job success.
"There are variables that affect whether people get a job that are not in colleges' control," she said. "Assisting students in getting a job is part of our mission, but it's important to make the scheme sensible."
Julian Gravatt, assistant chief executive of the Association of Colleges, said the scheme could encourage principals to be "risk-averse" and focus on the employment sectors with the most job opportunities.
"It could lead to an increase in desirable behaviour and focus attention on areas that haven't been given enough focus in the past," he said. "It helps reward organisations that do the right sort of things, but it could also be difficult to measure. We can get someone into a job for a week, but we want them to get sustainable jobs."