The fee plans are controversial but, so far, there has been less discussion about the costs that make them necessary. The vice-chancellors’

gin-and-tonic offensive led the successful campaign for more money, but they were helped by a stream of official reports.

Back in 1997, the Dearing report argued that all the stakeholders in higher education needed to pay more for it, including students, employers and government. Two years later, the Bett report argued for pound;1 billion extra to pay existing staff fairly and to make sure enough replacements were recruited. Finally, in 2002, the Transparency Review put a figure on the long-term costs of maintaining buildings and equipment.

Underfunding has left universities with clapped-out laboratories and ageing lecturers. Replacing both will be costly. The Government now accepts this, so is finding them more money.

As ever, the argument about university financing has been carried out in isolation from the rest of the public services. This reflects the belief that HE is a special case, which it is, to some extent, because of the global nature of much academic research.

But in many ways, the arguments made by universities apply just as much to colleges. The learning and skills sector has not had a Bett report but it too will face staffing problems when the current generation of lecturers retires. You do not need a “Transparency Review” to see that many 1960s college buildings will not last.

If anything, the position of colleges is worse than universities. Their inheritance is smaller and their options fewer.

For the past 10 years funding of courses has been squeezed. Most colleges have found other sources of funding in grants and contracts, but these are often short-term fixes, that do not fund overheads. The Government would like employers to bear more of the cost of courses, but has no clear strategy to make it happen beyond giving colleges targets for employer involvement.

This is the context within which to assess the welcome changes to Learning and Skills Council funding for 2003-4. Although, the changes are good, they do not go far enough. The extra money helps but it does not solve the problems of longer-term costs that colleges face, just as universities do.

Nevertheless it is important to recognise the positive aspects of a 21 per cent cash increase over three years. Many businesses facing acute pressure to keep costs down would love such a guarantee.

The updated funding formula has also rightly directed more money to deal with the costs of disadvantage and operating in expensive areas.

Finally, the LSC has recognised the need for a new way of doing things. The plans to reduce bureaucracy may be at an early stage and may, in the short term, actually increase workload. New systems will come in before the old ones have been closed down. Nevertheless anything that makes it possible to drop the daft current system of funding has to be a good thing.

However, all this still leaves us with the longer-term financial problems for post-16 education.

Staff costs will continue to rise as a result of recruitment pressures, tax and pension changes. But income will only rise if government keeps increasing spending on further education beyond 2005.

Higher fees may help some universities out of this fix. But fees will not help most colleges. If our income does not rise to accommodate higher pay and other costs, the only option open to us will be to cuts jobs and bureaucracy.

Julian Gravatt is finance director at the City Lit, London