Budget shocks reverberated through further education this week as principals tried to make sense of swingeing cuts in capital allocations which may mean the end of expansion.

The settlement was far more damaging than further education had expected, with capital funding reduced by 31 per cent in 1996/97 and by 63 per cent by 1998/99. The Government's expectation that the private sector would make up the shortfall was dismissed as "barmy" by principals.

Chris Pratt, principal of Airedale and Wharfedale College in Leeds, said the honeymoon was well and truly over. "Further education has come out worst of all and there is no doubt we will be forced to severely restrict growth. This news may kill off expansion altogether," he said.

Mike Austin, principal of Accrington and Rossendale College, agreed that expansion would be hit. "The Government's blithe assumption that banks and other private sources will give colleges enough funds is quite barmy," he said. "We simply don't have the necessary assets."

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Jim Aleander, principal of West Nottinghamshire College, said: "The money may exist but banks will only allocate loans if they have guarantees and that leaves us with a problem."

The Further Education Funding Council said it would be reconsidering its priorities and methods of allocating funds as a result of the settlement and is asking colleges to respond to a questionnaire by next week spelling out three options.

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* The level of capital funding presented "significant new challenges" according to the FEFC. By 1998 it will no longer be possible for the council to maintain the equipment allocation at its present level, let alone provide separate allocations to support building works, unless it chose to transfer funds from the recurrent budget.

* The council's three options are to maintain the planned recurrent funding and distribute less for capital purposes, to maintain the current capital allocations by transferring increasing amounts from recurrent funds or to distribute separately only those funds required for selected specific capital works, the rest being allocated by the recurrent funding methodology.