A challenge was laid down to colleges last year to stop complaining about cuts and to start making more money.

Chris Humphries, director-general of the UK Commission for Employment and Skills, said colleges needed to get over the pound;200 million cuts that had just been announced and focus on making up the difference with increased fees for adults and businesses. “My chairman always says any organisation can absorb a 10 per cent cut and still maintain services at the same level,” he said.

Now the effect of those cuts is emerging, and colleges know almost all of them face more than a 10 per cent reduction, with the worst affected losing a quarter of adult funding. Can charging more still help?

The most recent total for college fee income from individuals and businesses was pound;491 million, or 18 per cent of the total college funds for adult skills. Just less than a third of this came from individual adult students.

Mr Humphries said that in many other countries colleges would raise 20 to 40 per cent of their income from fees: if English colleges mat-ched the upper level of this, excluding 16 to 19 funding, they would raise more than pound;1 billion and the funding situation would look different.

Except the trend is in exactly the opposite direction. Four years ago, when the Learning and Skills Council (LSC) first started ramping up expectations that colleges would charge their adult students more, the total fee income was higher than the most recent figures, at pound;595 million. There have been some changes to the way these figures were reported, however.

Pat Bacon, president of the Association of Colleges, said: “There is a very clear message that fees from individuals and employers are not going to be able to replace the cuts that we are feeling in terms of public sector contributions.”

Businesses tend to agree that the pound;2.6 billion they spend on external training is the limit. A spokesperson for the Federation of Small Businesses said: “Coming out of the recession, the issue is there isn’t much of a budget for training. In our survey last year, only 17 per cent of businesses said they expected to increase expenditure in the next two years.”

But why have college incomes from fees already fallen? The recession is a factor, but colleges point the finger at another culprit, Train to Gain. As fees paid by individuals rose, flooding the market with nearly pound;1 billion of free training seems to have caused the amount raised from employers to fall.

Those that were successfully charging employers for level 2 training found themselves giving away public funding instead.

Andy Wilson, principal of Westminster Kingsway College, said: “If you go back to the time before Train to Gain and the level 2 entitlement, we were charging reasonably substantial fees for level 2 work in catering. Train to Gain stopped us charging those fees. There needs to be room to let the market speak.”

Some colleges have reportedly been on the verge of signing training contracts only to find themselves undercut by another provider offering the same for free. Other principals say the problem is less between colleges and more a general expectation of free training created by the programme.

Worse, ever-changing policies - supporting people retraining at the same level when funds were plentiful, then abruptly stopping when the money ran out - have left employers confused.

A review of fees policy being carried out by LSC chairman Chris Banks and due in June is expected to address part of this by requiring providers to charge a minimum fee.

Until now, there has been a constantly rising target for bringing in fee income from individual students, which reached 50 per cent this year. But there has been no corresponding target for employers.

Nick Linford, author of The Hands-on Guide to Post-16 Funding, said: “I think they will introduce a minimum fee because if no one else charges, it’s hard to start.

“Whatever businesses say about people not being able to pay, if they’re not willing, it’s because it’s not worth it. If it makes a difference to the bottom line, they will pay.”

The situation is complicated by employers offering “in kind” contributions: premises, materials and other support. Businesses say these cost them more than pound;8 billion.

Now the Information Authority, FE’s data regulator, is expecting colleges to fill out a return detailing the value of in-kind contributions, even though the LSC’s own research suggested the validity of these kind of self assessments would be “difficult to assure”.

Mr Linford said: “There’s a big part of me that wants to support coming up with a bigger number, because a bigger number means more protection for the public subsidy: the Treasury would see a lot of people putting their hands in their pocket.”

Gathering data on in-kind contributions and inflating the value of industry contributions is attractive to both employers, who can boast a higher investment in training, and to FE as a whole in showing support from business. But it will not help colleges in their search for more real cash.

PAY DAYS: COLLEGES’ SOURCES OF INCOME

LSC grants: pound;5.9 billion of which pound;2.7bn is estimated for adult education

Tuition feeseducation contracts: pound;491 million

Other grantscontract income: pound;117m

Other income: pound;442m

Endowment and investment income: pound;76m

Total: pound;7,060,084,000.