Any remaining hopes the Tories may have had of vouchers becoming the driving force in a post-16 education market have been dashed. Senior officials warned ministers they would not be able to stop private schools cashing in and driving up costs.
Ministers have also abandoned a two-year-old pledge to eliminate differences in costs for the same courses run by different agencies, such as schools, colleges and training and enterprise councils.
Instead, the payment-by-results system used in colleges - where cash is withheld and paid only if a student makes the grade - will be imposed on school sixth-forms. Ministers insist, however, their evidence shows that claims that unfair funding skewed the market were exaggerated.
Payment by results will be backed by a new system of Learning Credits - phased in from the spring. They will not have a cash value but will spell out the full state-funded education and training entitlement all 16 to 21-year-olds can expect, whether in school, college or work.
A raft of reforms and entitlements post-14 are spelled out this week in the White Paper, Learning to Compete: Education and Training for 14-19 Year Olds.
The paper was launched by Education and Employment Secretary Gillian Shephard as "an ambitious vision for first class 14-19 learning." The Government was giving disaffected teenagers a "lifeline" and "a new start in life", she said.
The White Paper includes a "relaunch strategy" involving schools, colleges and employers to prevent young drop-outs becoming unemployable.
The curriculum post-14 will become more work-oriented and a new "entry level" qualification, already proposed by Sir Ron Dearing, launched for underachievers likely to gain less than a grade G GCSE.
A range of initiatives would bring more "sharpness and coherence to the system, Mrs Shephard said. These include inspection of work-based training, "common principles" for funding all education and training providers and new National Traineeships - leading to nationally recognised qualification - to replace Youth Training.
The White Paper was the Government's first attempt to shape a comprehensive strategy for 14-19 education and training since the Department for Education and Employment was formed from a merger.
Industrialists welcomed the package. Adair Turner, director general of the Confederation of British Industry, said: "The White Paper addresses in a coherent and detailed way all 16-19 learning. It means that the transition from education into employment is now getting the proper attention that it deserves. "
However, opposition parties, local education authorities, teacher unions and college leaders were cynical. The paper was variously dismissed as "pre-election papering over cracks" and a policy of "too little too late".
Bryan Davies, Labour's further and higher education spokesman, accused Mrs Shephard of "resorting to stealing Labour's clothes". He added: "Most of these proposals are a straight rip-off from Labour proposals published in the spring."
Although Mrs Shephard appears to have won her rearguard action in Cabinet against vouchers, Doug McAvoy, general secretary of the National Union of Teachers, remains unconvinced. "Learning credits seem an expensive waste of time but could be laying the groundwork for later conversion to full-blown vouchers."
Mrs Shephard also failed to convince LEA leaders of the merits in payment by results. They said it would fail to provide the spur she hoped for in small sixth-forms, while delaying urgently-needed resources to most schools.
David Hart, general secretary of the National Association of Head Teachers, welcomed parts of the paper but warned of significant flaws in the payment-by-results plan.
"The Government's drive to introduce a competitive element into the funding of those sixth-forms on the same basis as those in colleges will inevitably lead to funding on the basis of the lowest common denominator."
What The White Paper promises
* Plans to stop disaffected pupils dropping out.
* National Traineeships or "junior apprenticeships" for low achievers.
* A more work-related curriculum post-14.
* Tougher inspection of work-based training.
* Learning credits or "entitlements" from 14 to 21.
* Common principals of funding schools and colleges.
* Better careers advice.
* A revised National Record of Achievement.