Ministers are understood to have ruled out moves to strip local authorities of their control over discretionary grants for further education in the near future.
A West Country pilot which might have paved the way for a national model, has been all but abandoned. College principals and Devon county council leaders have gone back to the drawing board on plans to hand much of the control over the cash to the colleges.
Legislation under the 1962 Local Government Act, which gave responsibility for grants to LEAs, and the problems of unpicking a complex bureaucracy without falling foul of the local government ombudsman made the plans unworkable.
While the 1962 Act gave LEAs control, it did not stipulate discretionary grant levels either in cash terms or as a proportion of the total budget. Cash-strapped councils have, therefore, raided the grants pot to fund teachers' pay in recent years.
A recent survey by the Association of Colleges showed a cut nationally over three years to 1995 from Pounds 170m to Pounds 110m in England. The Association this week called for control of the cash to be switched to individual colleges, funded directly by the Department for Education and Employment.
Officials at the DFEE are looking at a range of possibilities ranging from legislation to strip them of control to a partial cut in powers. One possibility is that they will be left with administrative control while the Government will dictate how much must be set aside.
Talks between DFEE officials and the local authorities indicate that whatever interim arrangements are made in advance of longer-term legislation, LEAs are unlikely to be excluded at this stage.
A spokesman for the Association of County Councils said: "The safest thing is for no interim measures before Sir Ron Dearing has reported on the future of higher education. His views are certain to shape how awards for 16 to 19-year-olds are dealt with."
But Devon college heads say this would be most unsatisfactory. Frank Rosamond, principal of East Devon College, said: "The money is not being used to best effect. We have considerable student travel cost, for example, which we must subsidise."