Education department officials have taken an axe to the prestigious Pounds 30m competitiveness and development funds to help to meet the bill. The cash allows training and enterprise councils to bankroll work-related training in colleges.

The decision to slash the funds by up to 40 per cent has plunged the education and employment minister James Paice into fresh controversy, drawing anger from colleges and TECs.

Regional government offices have ordered an indefinite freeze on all bids for funds, throwing partnership programmes between colleges and industry into turmoil.

College and TEC chiefs said it would not be possible to top-slice schemes, so whole programmes would have to be dropped. Many have been up to three years in development. The most vulnerable projects include a dyslexia centre, to be run by Lambeth College for inner-London schools and colleges, and an adult education return-to-work programme run by a partnership in the north of England.

Letters from regional offices to TECs identify the demand-led element for college expansion as the reason for cut. They say “the department has decided to reduce the national funding for further education competitiveness and development funds by Pounds 10m, with each region taking a 38 per cent cut on the budget previously available”.

College and TEC leaders accuse Mr Paice of “giving with one hand while taking with the other” and of “deceiving colleges into believing he would foot the bill”.

John Ernshaw, education director for Central London TEC, said: “We have built up tremendous partnerships with colleges through this fund and do not want them lost. Ministers seem to have no idea of the damage they are doing.”

Mike Austin, principal of Accrington and Rossendale College, said: “It was our money to start with. To take it back to cover their blushes is quite in character. But I am annoyed to receive a letter telling me all bids for competitiveness funds are off.”

Colleges and TECs are demanding that Mr Paice spells out exactly how he is paying for the Pounds 84m college expansion (known as the demand-led element) and what cuts will be made elsewhere.

Meanwhile, detailed proposals for spreading the pain of cuts when the DLE fund is abolished were arriving at colleges today.

The Further Education Funding Council is asking principals to comment on a string of possible ways to pay for the hundreds of thousands of student places that exceed college recruitment targets.

Options include: * maintaining a budget for expansion, but at a lower rate than at present; * halting funding for certain types of courses; * giving priority to statutory provision - particularly courses for 16- to 19-year-olds.

The circular comes as a working group meets to review the future of franchising. The group will produce recommendations in time for the FEFC funding round in March, but will meet in the summer to look at the longer-term future of franchising, which has accounted for much growth in student numbers.

Members include: Gordon Stokes, principal of North Warwickshire and Hinkley College; Ann Limb, principal of Cambridge Regional College; Eddie McIntire, principal of Birmingham College of Food; David Henderson, principal of Priestley College; John Brennan, police director of the Association of Colleges; Chris Humphries, policy director of the TEC National Council; Richard Guy, chief executive of Manchester TEC; Graham Hoyle, chief executive of Gloucestershire TEC, and Philip Chorley, of the National Advisory Council for Education and Training Targets.