The Teacher Training Agency, which allocates the funds, says it is powerless to prevent this. A loophole in the 1994 Act which set up the agency means that it cannot call on institutions to account for the money it provides. The Act empowers the agency to decide how many student places it wants to fund, but does not specify that the money should be spent on teacher training.

The loophole has come to light following a major restructuring of the education division at South Bank University, where the BEd course is being discontinued after an agency decision to cut the number of student places it is prepared to fund. Four English lecturers whose main work had nothing to do with the education courses were told that their posts were disappearing because they were funded by the TTA.

Alan Kennedy, a senior lecturer, who has accepted early retirement, says: “We were dumbfounded. I did some teaching on the elective English part of the BEd, but in all my years at South Bank nobody ever suggested I was part of the education division.”

A TTA spokesman said that he was unable to comment on the way South Bank was using its funding, since under the terms of the Act that was entirely a matter for the university administration. “We have no way of knowing how higher education institutions are spending the funding that we allocate to them, ” he said.

The National Union of Teachers’ general secretary, Doug McAvoy, said: “Money allocated through the TTA for initial teacher training should be spent on teacher education, and we would expect higher education institutions to respect the spirit of the funding arrangements.”

Sue Nicholson, of the National Association of Head Teachers, said: “Teacher training departments are not funded so generously that we can afford to see money diverted to other purposes, and David Blunkett needs to act urgently to close this loophole.”