City of Liverpool College could have its funding withdrawn after falling from outstanding to the lowest Ofsted grade of inadequate.

The Skills Funding Agency and the Department for Business, Innovation and Skills (BIS) said they were “considering action” in response to the 17,000-learner college’s inspection result.

Options listed in the agency’s Provider Risk Assessment and Management guidance include issuing  a notice of concern, suspending recruitment of learners and, ultimately, withdrawing funding. Its 2012/13 academic year the college’s agency allocation was £18.5m.

A joint statement from the agency and BIS said: “Following the publication of the Ofsted report, we are considering the action we will take in line with our published processes for provider risk assessment and management.”

The Liverpool college, which achieved the highest grade almost across the board at its last inspection in early 2009, was revisited in early February. It was graded inadequate in every headline Ofsted field.

It has withdrawn from the 157 Group as a result of the report that said the college, formerly Liverpool Community College, had too many students turning up late for lessons — if at all — and leaving without qualifications.

It said there were improvements in leadership, but governors had “not monitored the significant deterioration in student performance”.

The college must address this major challenge and show how improvements can be made rapidly.”

Principal Elaine Bowker, who took up post mid-2011, said she accepted the result, but declined to add to her statement issued on March 15 – the day the Ofsted report was published.

She said: “We accept the report and are working hard to ensure that the areas highlighted as inadequate are improved.

“We have met with all of our internal teams, from governors to teaching staff, and we are certain that there is a strong commitment to tackle any weaknesses.”

Lynne Sedgemore, 157 Group executive director, said: “We fully understand the college’s top priority will be to focus on improving performance and regaining good or outstanding grades.”

The college remains a member of the Gazelle Group, whose chief executive, Fintan Donohue, said: “Gazelle totally recognises the value of the Ofsted process and every Gazelle college is wholly committed to achieving the highest possible grades.

“However, this is not a deciding factor in the membership, therefore City of Liverpool College’s membership remains unaffected, and Gazelle remains fully supportive of the college.”

Meanwhile, Liverpool City Council’s cabinet member for employment, enterprise and skills, Nick Small, said he was “confident the issues raised by Ofsted have already started to be addressed”.

And Shadow Education Secretary Stephen Twigg, Labour MP for Liverpool West Derby, said he would be having regular discussions with Mrs Bowker about the situation at the college.

Louise Ellman, Labour MP for Liverpool Riverside, added: “The college must address this major challenge and show how improvements can be made rapidly. I am confident this can be achieved.”

Steve Rotheram, Labour MP for Liverpool Walton, said: “The leadership team of the college is working hard to ensure that areas highlighted in the Ofsted report are addressed and will continue to do so with our support.”

And Luciana Berger, Labour MP for Liverpool Wavertree, said: “While the Ofsted report was disappointing and the weaknesses must be addressed… I am confident the college will work hard to ensure this happens.”