Training and enterprise council leaders say more investment is needed if the programme - due to be launched in September 1997 - is to succeed.
The Government is pinning its hopes on the initiative, proposed by Sir Ron Dearing in his review of 16 to 19 qualifications, to help it reach the still remote national training and education targets for young people. These targets are crucial, ministers say, if the UK is to remain competitive.
But at their national conference in Birmingham last week TECs said that without new money the traineeships would not provide the promised improvement on Youth Training, the current skills-based programme for school-leavers acknowledged to be badly in need of reform.
The TECs want to see the cash - which they claim can be saved by slashing their present administrative costs - ploughed back into funding for National Traineeships and their counterpart the Modern Apprenticeship.
However, Mrs Shephard told them funds would have to come from savings on wastage under YT.
Ministers earlier conceded that up to 30 per cent of the Pounds 1.3 billion TEC training budget is spent on unwieldy bureaucracy created by the Government's demand for detailed information on every trainee.
The TECs insist administration costs could be slashed to 10 per cent without damaging quality or accountability if the Government relaxed the rules. Savings of more than Pounds 250 million could be passed on the providers including FE colleges - which spend Pounds 115 million a year on TEC contracts - to improve training.
But Mrs Shephard failed to indicate whether they would be allowed to keep the cash or whether the money would be clawed back by the Treasury. Chancellor Kenneth Clarke has little hope of pre-election tax cuts without cash back from departments such as education and employment.
Chris Humphries, director of policy for the TEC national council, said the emphasis on key skills - communications, number and information technology - in the National Traineeships would require considerable new cash.
"There is no question extra is needed. There has to be, unless the Government instructs all awarding bodies to charge nothing for their services." Extra training under the proposed scheme would be a further cost, he said.
Mrs Shephard insisted, however, that no new money was available. YT had led to waste and TEC spending was not always "best focused", she said.
"The main thing is to get the strategy right. I don't see that it should cost more to do something properly and in a more focused way."
The criticism stung TEC leaders at the conference, given the Government's admission that the current training programmes are overburdened with bureaucracy.
Mr Humphries called the present system a paperchase. "Our argument is not about having an inadequate level of quality control, it is about having an appropriate level." He asked why a tighter administrative procedure without such costly burdens was acceptable for colleges but not for TECs.
Colleges acknowledge that programmes they run for the TECs demand far more bureaucracy. But they fear any reductions under the new traineeships may simply mean less work for the TECs, rather than being passed on to providers.
Mrs Shephard said a programme was in place to reduce bureaucracy but stressed there was "a balance to be struck with public accountability".
Apparent antagonism between TECs and ministers comes after the TEC national council published a series of four consultative policy papers demanding radical changes in the funding and structure of training programmes.
One contained an uncompromising attack on present Government policies aimed at getting the unemployed back to work, claiming the benefits system "rewarded passivity".
The papers are likely to be interpreted as TEC efforts to reposition themselves in anticipation of a possible Labour government within the year.
In a TEC conference address, shadow chancellor Gordon Brown reaffirmed Labour's commitment to cut TEC bureaucracy.
But in highlighting his party's wholesale review of post-16 maintenance and provision, Mr Brown signalled a preference for steering more young people into continuing full-time education in colleges and schools at 16.
This stance will reassure colleges but alarm TECs, who hope disaffected school-leavers will be channelled into the work-based training routes.