Plans by the Welsh Secretary John Redwood to impose efficiency measures on schools will lead to the closure of small sixth forms, headteachers warn.
Proposals to reform funding are contained in a Welsh Office document setting out the framework for local management schemes being drawn up by the 22 new unitary local authorities, due to take over responsibility for education next April.
Mr Redwood, who has a reputation for testing out radical policies which could be taken up in the rest of the country, wants sixth-form funding to reflect schools' performance and the proportion of students who stay on until they complete their courses. The proposal would bring the schools into line with conditions in further education colleges.
The report says: "Funding in FE now takes account of students' performance and completion of courses. Ministers would now like to see these factors reflected in the funding of Years 12 and 13."
The new authorities are also under budgetary pressure to cut the cost of courses in line with colleges. Such a move could lead to schools losing thousands of pounds.
Sir Christopher Ball, director of learning at the Royal Society of Arts, estimates that in many LEAs, the cost of running three A-levels is Pounds 1,500 more in schools than in colleges.
David Winfield, secretary of the National Association of Head Teachers in Wales, said: "Smaller sixth forms are very threatened by the new funding formula. Education authorities lost cash when colleges went independent. I don't see how the smaller unitary authorities will be able to afford sixth forms."
David Hart, general secretary of the NAHT, warned that the proposals could lead not only to closures of small sixth forms in Wales but could be extended to England, forcing hundreds of schools to lose sixth forms. "The Government wants it both ways. It argues for choice and diversity but it is not willing to pay for it," he said.
Department for Education officials are known to be studying the scheme closely. Ministers are looking for ways of funding all post-16 education and training through learning credits or vouchers, but are being hampered partly because of funding variations between schools and colleges. The NAHT accepts that survival of sixth-forms may depend on collaboration with colleges, along the lines called for this week by David Blunkett, the shadow education spokesman.