More than 1,000 Sunderland school pupils spend a week or more with employers in the city to gain work experience to prepare them for their future careers.
But the £25million national funding pot to pay for the Education Business Partnership Services has been scrapped with immediate affect.
Graeme Miller, managing director of Tyne and Wear Education Business Link Organisation (Tweblo), which helps arrange work experience placements, said the move meant some work experience schemes were now in doubt.
“Taking away this support is an appalling decision – £25million nationally is not a lot of money,” he said. “The expectation seems to be that schools will pay for this, but school budgets are set the previous year.
“It may be expected that the local authority will carry the can, but how can that be when Sunderland City Council is facing £58million of cuts?”
About 1,200 pupils are expected to go on work experience placements between now and July from the city’s 18 secondary schools.
Mr Miller said the placements provided crucial experience for the young people and helped give employers what they needed from potential new recruits.
“Businesses have said young people are leaving school with an increasing number of qualifications, but they’re not fit for purpose for entering work,” he said.
“On work experience placements they’re treated like employees, they have to behave like employees and they have two weeks to learn what work’s about.”
Tweblo carries out health and safety checks on employers offering work experience to children.
It employs two full time staff, a self-employed health and safety advisor and an education consultant.
It works with careers service Connexions, which arranges the placements, and Mr Miller said both now face problems.
“It’s our main contract. If I was to do nothing, it would close us,” he said.
“I will be looking for other work for us. If I were to just sit here crying, a charity which has been running for 10 years would close.”
Mr Miller, who is also a Labour councillor, claims the £25million has been pulled to help pay for the new £180million further education bursary scheme introduced to replace Educational Maintenance Allowance.
“It’s just been sneaked out – there’s been no announcement and a lot of people probably don’t know about it,” he added.
John Wilson, senior policy manager at the Young People’s Learning Agency, said in a letter to work experience organisations such as Tweblo, that the decision to pull funding had been made by Education Secretary Michael Gove.
He said: “Substantial savings are needed and ministers have made it clear that the priority for education expenditure will be frontline services in schools.
“Funding for Education Business Partnership Services (EBPS) does not come within that category.”
Sunderland Conservatives education spokesman Robert Oliver said: “The EBPS funding has fallen victim to the enormous debt racked up by the last Labour government which is currently costing £120million a day to service.
“Given the lack of funds available, the Coalition Government has decided to protect frontline education services to the benefit of pupils and teachers but schools can still buy in to the EBPS should they think it represents good value for money.”