English universities are to be asked whether a teaching quality premium should be included in a revised teaching funding formula.

The question is included in a consultation document issued this week by the ÖйúAƬ Funding Council for England. It requests replies by March 31 1996, the deadline for the research assessment exercise. Any revised system would come into force in 1997/98.

Teaching quality, unlike research, has so far been excluded from the funding formula. A Coopers and Lybrand report evaluating the current funding method found that "a quality premium (and penalties for poor performers) built into the funding mechanism would offer a powerful incentive".

Most institutions favoured such a change, but only after the big issues in quality assessment were resolved. Universities will be asked to respond to the following:

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* What should be funded: in particular whether process and output elements should be added to the current input base

* The rate of funding: whether there should be convergence in rates of funding, a unit-price method and a quality element

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* Funding mechanisms: whether to continue with the present cost plus margin method, should differences between subjects, modes and levels be reduced The report found that the funding machinery is a "powerful mechanism for steering institutions' behaviour" and that it had achieved general

stability in the sector over the past three years.

But it had also created the following difficulties:

* A perception that "efficient" means cheap

* The immense complexity of the system led some institutions into games playing, attempting to maximise their income by manipulating data

* The automatic roll forward of 100 per cent of core funding reduces pressure to re-examine the marginal value of activity and, during consolidation, preserves the status quo at the expense of innovation

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* The ratchet effect of holdback penalties being rolled into future core funding penalises short-term failings with long-term cuts