Writing in this week's FE Focus, David Willetts, shadow minister for universities and skills, said his party wants to free colleges from "central planning and interference" but that, in return, further education must accept a greater degree of competition from private training providers.
The party's latest FE strategy document, launched by Mr Willetts at last week's Assocation of Colleges conference in Birmingham, says that failing FE providers could be closed and new providers, whether public, private or voluntary could be eligible to take over their operation.
"Where provision is insufficient or inadequate, the FE system could be opened up to new institutions to apply for state funding," the paper says. "These could be part of the public, private or voluntary sectors. They could operate from FE buildings held in trust where previous management arrangements have failed."
It says that FE institutions could gain the equivalent of the academy status available to schools. If so, high-performing colleges, universities, faith organisations, private companies and philanthropists could apply to set up and manage FE colleges.
The paper, The FEFC Funding Model and Skills Accounts, proposes greater autonomy for colleges to determine educational provision locally. A revived Further Education Funding Council would then contract with colleges and other providers to fund provision.
Mr Willetts said: "The FEFC will also be able to contract with private training providers on a similar basis to colleges, with new competitive pressures an essential quid pro quo for new freedoms."
The paper says that colleges which fail to meet the student targets they set themselves would be able to trade their unwanted places, possibly online, with colleges that want to expand.
The policy paper is open to consultation and Mr Willetts has invited submissions by January 15. It is available on the Conservative Party and AoC websites.