Colleges that take part in the Government’s welfare to work programme will be subject to a closely supervised funding regime. Bills will only be paid in full if unemployed participants find a job after a year on full-time education and training, one of the four options under the initiative, which goes nationwide in April.

The total fee to be paid, from pound;1,700 to pound;2,650 per trainee, is half the cost of a conventional FE course and principals fear this could undermine the Government’s claim that its “new deal” for unemployed 18 to 24-year-olds is to be a quality programme.

The full-time course, at 30 hours a week for 44 weeks, will last 1,320 hours. A typical full-time non-advanced course of 21 modules takes 840 hours a year and would cost pound;3,300. A course of 1,320 hours would cost about pound;5,000 pro rata, almost double the maximum payment.

David Snaith, principal of Stow College, said: “This is a wonderful initiative which deserves to succeed but we have got to be properly funded for it. Otherwise we will make a loss and, as publicly accountable bodies, we are held responsible for balancing our books. My great fear therefore is that this could fail as previous Government training programmes did.“Unemployed young people will require much more intensive guidance, teaching and support than mainstream FE students, which will have further resource implications, Dr Snaith says.

Peter Duncan, principal of Glasgow College of Commerce, says childcare and travel costs will have to be met out of the Government’s fee. His college gives students pound;10 a week to purchase a Strathclyde bus card which would amount to pound;440 for trainees on the 44-week new deal courses, leaving only pound;1,260 on the cheapest course for childcare and teaching costs. “It is not an attractive sum of money,” Mr Duncan said.

Tom Wilson, principal of Glasgow College of Building and Printing, suggested that the cash was intended to meet “marginal costs” as additional new deal trainees make up the numbers in existing teaching groups. But Mr Wilson conceded there could be tensions if separate classes have to be formed.

Mr Duncan believes tacking new deal students on to existing courses “will not be appropriate for a difficult client group who have not been touched by employment or post-school education and who therefore require an intensive and quality experience”.

Detailed guidance has been issued by the Scottish Office to the FE sector and other training providers setting out the terms and conditions under the pound;3.5 billion new deal, the Government’s flagship policy for the next five years.

Michael Leech, principal of Stevenson College in Edinburgh, who is a member of the new deal task force in Scotland, accepts that the full cost of delivering training is not being funded. But many of the students will be joining existing classes and in areas of high unemployment additional cash will be available from sources such as the European Social Fund.

The money paid out to colleges and other training providers will be in three averaged price bands to reflect differing course costs: pound;1,700, pound;2,050 and pound;2,650 per trainee. Full-time education and training will last for a year, unlike the other options which are for six months. Each sum will comprise three elements: 20 per cent to cover start-up costs after the trainee has embarked on an agreed individual training plan; 50 per cent in “on-programme” payments for continuing attendance; and a final payment when the trainee has got the relevant Scottish Vocational Qualifications and found a job or become self-employed.

The 30 per cent “outcome-related” element will be skewed in favour of achieving SVQs. But a third of the final payment, ranging from pound;170 to pound;265 per participant, will be retained and paid out only if a trainee has held down a job for at least three months within four months of leaving the programme.

Dr Snaith said: “I don’t mind being held to account if people don’t get qualifications because that is our business. But why should we lose out if, let us say, a trainee does well and moves on to another course rather than takes a job?” Mr Duncan says forcing colleges to wait seven months to be paid in full could cause cash-flow problems. “The question of whether people get jobs is a wider issue related to the performance of the economy, for which FE colleges can hardly be held responsible.”

Professor Wilson said payment by results will be a test of the induction process during the six-week “gateway” period. “Provided the gateway does its job well and people are placed on appropriate courses, the risks of not qualifying or securing employment should not be a major issue.

“There will always be problems with a system of payment by results and it will be tough,” Mr Leech at Stevenson concedes. “But there has to be some incentive for colleges to keep their eye on the ball to remind them this is all about bringing unemployed young people to a standard of employability.”

Despite the criticisms, the Scottish Office guidance insists that the whole point of the new deal is “to encourage providers and employers to support sustainable employment”. Education and training will have to take place in “a realistic business-like environment” and courses will only be supported if they are likely to lead to a job.

The Scottish Office makes clear repeatedly that the whole focus of the new deal is on finding jobs for young people, and FE involvement must reflect that.

Colleges will not be penalised if trainees leave early because they have found a job, the document states. “Where this happens,” it adds, “providers can receive the balance of on-programme payments on achievement of the agreed qualification if they continue to offer support to the employer.”

The Government is also setting aside additional money for training to reflect higher costs such as travel in rural areas, additional special needs and child care. But this will be paid out at the discretion of employment service district managers who are responsible for implementing the new deal.

Although the new deal programme will lead to considerable expansion for some colleges in areas of high unemployment, the additional student activity will not be allowed to increase colleges’ SUM counts - the student units of measurement used as the basis of Scottish Office grant allocations.

The full-time education and training option is specifically focused on the estimated 50 per cent of unemployed 18 to 24-year-olds who do not have SVQ level II or above. It is not “primarily intended to tackle higher level skill shortages”.

Support for SVQ level III and IV study might be considered, however, where achievement could lead to immediate employment. But new deal “personal advisers”, jobcentre staff who provide guidance for trainees during the gateway induction period, may choose to direct more able youngsters through the Skillseekers programe.

Personal advisers will also consider whether some new deal aspirants for full-time education and training may have to give up their course if they are already studying part-time and the course does not have “a sufficient employment focus”. An alternative could be enhancing the part-time course to ensure its “vocational relevance”.