If money makes the world go round, there is no overwhelming reason to believe that the university sector is exempted. The interplay of high ideas and the engagement of disinterested if contested debate add colour and vitality to ÖйúAƬ, but they may have little impact on changing behaviour. New practice may be more the outcome of grubby materialism than a response to calls from the moral high ground.

This could be one way of viewing the periodic research assessment exercises. Through the judicious dangling of the prospect of marginal additional funding, quite large shifts in institutional and personal behaviour have been achieved. Will initiatives by the funding councils to reward excellence in teaching have the same effect? Will they prove as instrumental in raising the status and standards of teaching as the RAE has been for research?

The forthcoming consultative exercise by the ÖйúAƬ Funding Council for England on the introduction of a direct funding for teaching excellence by 1999 will generate passion and possibly scepticism. Some may view the proposals as a further means of rewarding already well-endowed institutions for being well-endowed. It will be claimed that such policies will help to reimburse Oxford and Cambridge for lost college fees. There will be legitimate doubts too about the funders' ability to devise sufficiently robust procedures to produce the desired policy outcomes.

Yet it is important that the proposals are seen as an opportunity and not a threat. For this to occur there needs to be careful consideration of three key factors: principle, methodology, and reward.

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In principle, there would appear to be powerful arguments in favour of linking funding premiums to teaching quality. To balance teaching and research something like a teaching assessment exercise is needed. It would help correct the imbalances generated by the RAE and could spread good teaching practice and help develop new forms.

Methodology is trickier. One obvious means would be to reward those institutions that do well in the teaching quality assessments undertaken by the Quality Assurance Agency. But these are due to be phased out, following a recommendation in the Dearing report. Or will they be? If the assessments are retained, however, there will still be considerable reservations that the existing methodology will be unable to fully recognise predominantly non-resourced based excellence.

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This raises the question of reward. Rewarding existing excellence encourages others. The nature of the reward is critical and should take the form of extra students rather than raising the unit of funding. After all, HEFCE is trying to converge units of funding, a TAE equivalence presumably ought to promote more higher quality teaching.

There remains the vexed issue of whether to reward value-added. A respectable contrary argument to this would be that funders already have initiatives to improve teaching quality. These instruments should not be confused with the new teaching excellence levers.

Nonetheless, the requirement that institutions produce learning and teaching strategies for HEFCE by 1999 is one way of improving teaching quality. Strategic plans can establish targets for improvement which, when achieved, would be rewarded by a funding premium. This is not the same as project or seed-corn investment to seek added value, which is the role of special initiatives.

Ideally it should be possible to begin to reward institutions, either through support for learning and teaching strategies, and in time more directly, for progress on matters such as staff accreditation with the Institute for Learning and Teaching.

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Roger King is vice-chancellor of the University of Humberside and Lincolnshire.