Under the new system, the top-performing colleges will get a 3.5 per cent increase in funding next year, while those in the middle rank will get an extra 2.5 per cent. The remainder will be stuck with inflation-only increases.
As we report on the front page of FE Focus this week, the list reveals some striking disparities.
Clearly, the bigger colleges are the biggest losers. Six local learning and skills council areas have no colleges getting premium funding. Greater Manchester has eight, and Birmingham and Solihull have only one.
You cannot simply argue that colleges in areas of greater deprivation fare less well than those in sunny suburbia: London's Lewisham and Merseyside's Knowsley, for example, are two of the "winners".
But the LSC is storing up for itself some difficult problems. Big inner-city colleges have to cover the widest range of provision and may not always be able to offer top quality across the field. They must also carry the "burden" of widening participation, recruiting the students who are hardest to reach. These colleges are risk-takers and it seems perverse to penalise them.
Do colleges need this new three-tier funding system? Performance is already taken into account in other ways. If a college loses any students at Christmas time, then it will lose money - because funding is linked to retention. If a college gets a poor inspection report, then an action plan has to be drawn up and implemented. So measures are already in place to make changes and drive up quality.
Colleges could argue that they already have performance-related funding, more closely linked to the costs of delivery.
And will we see swings in funding from year to year that could destabilise some colleges?
If a college under-performs and then, in effect, loses money, the most likely outcome is that it will fall into a downward spiral. As college closures are still a relative rarity, the only action possible for the LSC would be to bail it out.
Of course, that would mean a complete reversal of the current policy.
The worse you are, the more money you get.