£100m fund to replace £500m pupil allowance

The coalition government is to spend £100m on helping children from poor families stay in education until the age of 18 in a tactical retreat over one of its most controversial spending cuts.

Ministers will go ahead with their plan to scrap educational maintenance allowances worth up to £30 a week for 16-18 year-olds, which currently cost £500m a year. However, they are ready to plough back about £100m of the saving into helping the poorest students stay on by subsidising their travel costs, purchasing text books and equipment and providing free lunches at further education colleges, The Independent has learnt.

The partial climbdown will be seen as a victory for the Liberal Democrats, who accept that EMAs are poorly targeted but are worried that abolishing them will deter some 16-year-olds from continuing their education. Detailed proposals are being drawn up for the Government by Simon Hughes, deputy leader of the Liberal Democrats, who will report to ministers by the end of this month.

Mr Hughes may propose that colleges are given extra funds to distribute to pupils to ensure the money is well targeted. Ministers believe such a system could be better than the current one even though it would cost less, because EMAs go to some pupils who would stay on even if they did not receive the subsidy.

Last night the Government headed off an attempt by the Labour Opposition to defeat the scrapping of EMAs in a Commons vote. Despite their reservations about the cut, Liberal Democrat MPs rejected Labour’s overtures to rebel after Michael Gove, the Education Secretary, assured them that the Hughes proposals would be taken seriously when he addressed their weekly meeting on Tuesday night.

The Coalition’s campaign to defend its cuts received an unexpected boost last night when the Treasury’s top civil servant said that three key areas of public spending were out of control under the previous Labour Government. Sir Nick Macpherson, the permanent secretary, who was highly rated by Gordon Brown, told a Commons committee that the Defence, Health and Education departments all had problems.

He said: "There was a point in the last decade when the Ministry of Defence lost control of public spending." He added: "We put Defence on special measures. We said 'You have got to report month by month about what is going on with your spending'. It is a particularly clear example.

"From time to time there would be problems in other departments. I can recall a problem with the Department of Health several years ago where there was a problem with their finances.

"Often, this happens when you are reforming the system. From time to time, there was a problem in Education. I think they encountered problems with public expenditure control."

His unusually candid remarks for a civil servant will infuriate Labour, which claims the Coalition is cutting “too far, too fast.” They are bound to be cited by Coalition ministers as evidence of wasteful spending by the previous administration.

Andy Burnham, the shadow Education Secretary, told the Commons debate that EMAs helped 650,000 young people and sent out an "empowering message of hope", allowing many young adults to have a "realistic dream" of going to university.

He attacked the "myths" that the weekly payment of between £10 and £30 was used to pay for luxuries. The allowance, paid to 16-18-year-olds living in households earning under £30,800, was "overwhelmingly used to provide the basics to support education" such as travel, books, equipment and food, he told MPs.

However, Tories seized on Mr Burnham’s remarks earlier that some sixth-formers spend their allowance on going out with friends rather than studying. “Yes, they may spend some of it on food and even the occasional time out with friends,” he said. “But part of being in a college means taking part in the whole life of a college, and why should we say to young people from the least well-off backgrounds, well, ‘you can’t have those things.’”