The questions that follow for colleges have been more prosaic. When will we get our 20045 allocation from the LSC?

Will this be in time to set our own budget before the end of July?

And what strings will be attached?

Although there have been good reasons for delay on each occasion, this is the third year in a row when colleges have been forced by external events to set their budgets in a rush. If the new business cycle achieves one thing in 2005, let’s hope it delivers earlier allocations.

For the more important announcements about money, we’ll need to wait until July. Sometime next month, Gordon Brown publishes the 2004 spending review.

This may include further information about the Department for Education and Skills budget.

Back in March, he increased the DfES budget from pound;56 billion in 20056 to pound;64 billion in 20078. The next stage of the process is to announce the split between schools, universities and skills. The Association of Colleges has made a case for more money for the rising number of post-16 learners and to equip a more highly skilled workforce. In July, we’ll see the Government’s first full response.

The other new announcement from Charles Clarke last week was on fees. He told the Learning and Skills Development Agency conference that the Government wanted “a new balance of responsibilities and funding between government, employers and learners” and “a historic shift in expectations in who pays for what”. The focus is on fees and the intention is to deliver changes in 20056.

In the next couple of months, the DfES plans a consultation on how colleges could generate more fee income from adult learners and employers. Time is short because most colleges need to set their 20056 fees by January 2005.

If significant changes are envisaged, there are only six months left to deliver them.

The historic shift that Charles Clarke describes has already started in higher education. The Higher Education Bill hasn’t yet completed its passage through parliament but most universities and colleges assume that it will become law.

Given that they have to complete 2006 prospectuses by Christmas, many are already giving thought to the workings of the new higher education fees and funding system. A key change is the deferral of fees. From 2006, full-time higher education students will be able to study now and pay later. Payments will be collected through the tax system but only if the graduate earns more than pound;15,000.

It is this change, more than any other, that is likely to influence fee-setting by universities and colleges. There is a widespread belief that applicants will be relatively insensitive to the price because they won’t be paying it for at least three or four years. Many universities appear to be considering a standard pound;3,000 fee with competition for students focused on the bursaries. Because whereas the student pays the fee sometime in the future, the institution will get the money - via the government - in the year that they study.

The Office of Fair Access will require pound;3,000 fees to be justified by adequate bursaries but the expectation is that most of the new money will be spent on improving the student experience.

This could lead to some interesting situations. Will universities set pound;3,000 fees in advance but compete on offers when it comes to clearing to fill their places? Will applicants trade offers from different institutions in August 2006 to get the best available? Subsidised accommodation versus a free laptop. Woe betide the university whose offers made in the heat of clearing look like waste in the cold light of day. If anything tests the Government’s generosity to the university sector, it will be this.

The higher education reforms may change expectations but the read-across to colleges could prove tricky.

Government policy for the past ten years has pushed colleges to widen participation and to recruit students to courses that are free.

At least 60 per cent of students currently in the college sector pay no fee at all, either because they are under 19 or get a concession. The scope of concessions has widened in recent years, most recently to cover those taking level 2 (GCSE-equivalent) qualifications for the first time.

Many fee-paying students start with low incomes or take short courses.

Fewer than one in six pay more than pound;100.

The college sector has a small base on which to build more fee income. The total income generated from fees of all sorts is pound;250 million a year.

Increasing fee income is a goal that colleges and government can share as part of an initiative to get more money into learning. But as a solution to current funding needs, fees are likely to fall short.

Colleges may be able to charge higher fees for some of their courses but will face demands in return from employers and adult learners. Fees are not a tax. If you ask for more, you generally have to give more, whether it’s a smaller class or more comfortable facilities. In the long-term, fees will have a major role in adult learning and skills. In the next three years, government funding is the main game in town.

Julian Gravatt is director of Funding and Development for the Association of Colleges