The problem started in earnest in the 200304 financial year.

Spending on school sixth forms and work-based learning exceeded predictions and left the LSC with continuing commitments in 200405. Money that in previous years had been clawed back from colleges didn’t materialise because most colleges exceeded their targets. The LSC couldn’t balance its budget until it got help from two sources. The Department for Education and Skills gave it pound;130 million in June 2004. And in July 2004, the LSC announced plans to defer payments to colleges worth pound;250m into the 200506 financial year. The payments delay is one month only - from March to April 2005 - but this is enough to make a difference to the LSC budget.

Its financial year ends on March 31. Putting back the payment solves a problem for 200405 by postponing it.

Balancing the LSC budget was a test of promises. One option for the LSC was to break a promise given six months earlier to colleges. Back in autumn 2003, colleges were given three-year funding allocations running from 200304 to 200506. The Government wants colleges to make plans and raise quality. Three-year budgets make this possible. But by May 2004, these were at risk because the LSC couldn’t afford the costs of other promises to schools and apprenticeships. Something had to give. Fortunately for colleges, it was the Government. It might not have happened if colleges had not worked together to make an effective case to MPs, ministers and the media.

The LSC balanced its budget for 200405 but it is on a knife-edge. Plan-led funding means that college budgets are fixed this year, but there are new sources of unpredictability. The Government is spending hundreds of millions of pounds on education maintenance allowances (EMAs). These help 16-year-olds from low-income families who stay in education. Staying-on rates should rise but what happens if they rise too far?

The LSC has put more money into 16 to 18 education to encourage expansion.

Local LSCs have fixed individual targets for the number of students. Many colleges contend that they could take on more. Some will beat this year’s target simply by recruiting the same number of people they enrolled last year. Expansion will mean standing still. Ministers guarantee that every 16-year-old has a place but has left it to the LSC to find the money. And the LSC has already said it will take a tough line on college requests for extra cash. Colleges need to prove their costs and show they’re meeting other targets. They may be asked to accept less money for adults. Other measures have been taken to control 200405 spending, sometimes taken at the last-minute. Late rule changes for entry to employment and English as a foreign language may control the budget but they do not help sensible planning in colleges. Success for all needs more notice than a July rule change.

Moving forward to 200506, pressures on the LSC intensify. The budget rises to pound;9.2bn but so do the targets. Ministers have already spent part of the budget in their commitments to school sixth forms. The second year of EMA expansion will create new spending commitments, related to 16 to 18-year-olds.

And then there is the growth of apprenticeships and the national roll-out of training for low-skilled adults - the level 2 (GCSE-equivalent) entitlement. Basic skills targets will also get harder to meet in the fifth year of the national strategy. And then there is quality improvement. Back in 2002, ministers promised real-terms funding increases as part of the Success for All programme. The LSC has few places to turn. Inevitably, the council will look for savings in its budget from fees, franchising and adult courses.

No college should expect any favour from the LSC in the 200506 funding round. A sixth- form college with no evening classes may find it easier than some general FE colleges but it won’t feel good. The Government protection for school sixth forms leaves even the best-funded college feeling sore at the comparison. Different funding levels translate directly into higher pay and easier workloads in schools. It is a battle that colleges will fight but ministers are keen to maintain financial stability in schools in the run-up to a major reform of school finance in 200607. If there’s any relief in the years after 200506, we’ll hear about it in the spending review announcement which is promised before Christmas. We already know that the targets for 200607 are higher. It’s likely that the money will not increase as much unless the college sector delivers an implausible efficiency gain. If there were easy solutions to hand, the 5,000 people in the DfES and LSC who fund and regulate further education and training would no doubt have found them. The LSC’s bad fortune in all this is to have started its life when budgets were rising and targets lighter but to find itself with harder targets at the point where the Treasury screws tighten.

Julian Gravatt is director of funding and development for the Association of Colleges