Concerns are growing that the loss of Pounds 115 million of expansion funding from further education next year will mean severe damage to links between colleges and companies at a time when ministers are looking to expand training.

Major training providers have already warned that contracts will be severed and thousands of student places lost.

Further Education Funding Council funding allocations published this month hit the vast majority of colleges. But those institutions which grew massively through franchised courses, often in conjunction with companies, are among the biggest losers.

And there are worries that companies will simply drop national vocational qualifications and other national qualifications if partnerships with colleges are cut.

Among the biggest losers is Stafford College, a major franchiser with links to brewing giants Bass and Scottish and Newcastle.

Principal Christine Megson said: “Companies have been building up their confidence in further education. The companies were training before they became involved with us and had their own training schemes; they believe in NVQs but to set them up and get their staff actively involved has cost a lot.

“What they have said is if the funding goes, they will stop training to NVQs - what they are using the money for is to buy in quality assurance to make sure training is high quality.”

Franchise deals between colleges and industry have been controversial, with questions asked about standards.

But the best links between colleges and business look likely to be the model for many developments under the new Government as it develops its Welfare to Work and University for Industry initiatives.

David Eade, principal of Barnsley College, another hit by the cuts, warned the squeeze could affect the Government’s plans. “I do not understand how we are going to succeed if we have soured relationships with a number of employers and companies.”

He said efforts to persuade companies to meet the funding shortfall had been partially successful, but several companies had pulled out of collaboration as a result of the cuts.

He said: “Franchising could have given us a real bridgehead to expand our work with industry to help us build the University of Industry, Welfare to Work and meet the Target 2000 aims.”

Ian Pearce, director of Business in the Community, said the private sector demanded consistency and stability from government.

“Business is looking to the government for an investment in money and resources in education and developing long-term, consistent practice. Short-term policies have frustrated business and wasted investment.”

Chris Ripper, personnel and trading director at Scottish and Newcastle Retail, said knowledge about franchised courses in the workplace had improved since the crisis over college expansion in February.

But he warned companies still needed subsidies to keep them committed to national vocational qualifications, arguing nationally accredited qualifications were still in their infancy.

He said: “They are starting to get street cred but it’s very early days. To have invested Pounds 1 million to get accreditation which is not nationally understood by the man in the street would be a big gamble and I think other large companies would say the same thing.

“If I had one message I would say there are some strong success stories and if the Government looks at outcomes - the number of quality NVQs being delivered at a low cost - it will see the investment is a very good one.”