The collapse of a training and enterprise council in London has left further and higher education institutions in its area facing budget cuts running into millions of pounds.

Emergency talks were to be held today between heads of four further education colleges and training chiefs from the Government Office for London to determine whether institutions will be able to recover any of the money owed to them by South Thames TEC, which called in the receivers just before Christmas.

The institutions owed the most for work contracted by the TEC for Government training schemes -- Woolwich College, Lambeth College, Southwark College and Lewisham College -- are claiming full compensation on the grounds that TECs are Government-backed agencies.

But the Department of Employment is arguing that the TECs are private companies, and responsibility for unpaid claims is therefore in the hands of the receivers, Grant Thornton.

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Legal advice sought by the colleges added to the gloom, suggesting that the institutions affected, which also include South Bank University, are likely to be treated as unsecured creditors.

College heads warned this week that relations between colleges and TECs, which are already delicate, could hit an all-time low if the Government refused to cover losses in the event of a TEC going under.

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Though the Department of Employment has made Pounds 9 million available to the receivers to cover the next three months, including continued training for 7,000 students and payment to colleges for claims since November 9, it has offered no guarantees for claims before that date.

Adrian Perry, principal of Lambeth College which is owed Pounds 1.2 million, said: "The experience of South Thames TEC is bound to have a bad effect on future relations with colleges".

Geoff Pine, principal of Woolwich College which is owed more than Pounds 500,000, said: "We allowed the amount we were owed to grow because we thought we were protected. Now it appears we were mistaken."