Universities have been given the go-ahead to introduce differential pay for academics.

The change was announced in the government's national science strategy, Investing in Innovation, which was launched this week. It would destroy the national pay bargaining structures supported by lecturers' unions.

The document, which follows last week's announcement of an extra ?1.25 billion for science in 2003-06, says: "Universities need to respond to the challenges of an increasingly competitive labour market."

It adds: "This means universities - particularly those which are recognised as leaders in their fields - being able to offer competitive salaries to potential staff."

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It says that money has been allocated in the spending review for pay increases targeted at the recruitment and retention of permanent staff in all disciplines in which there is the greatest competition.

Differential pay has long been mooted but this is the first time the government has given its clear support.

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Lecturers' union Natfhe warned that differential pay could breach equal opportunities legislation. An Association of University Teachers spokesman said: "All research staff should receive the same pay for the same level of work, regardless of subject."

Baroness Warwick, chief executive of Universities UK, welcomed the strategy. But she warned that ?1.225 billion was needed for human resources.

The strategy goes on to emphasise the need for universities to ensure that research costs are fully met and paves the way for funding council support to be made available to charities. The strategy says that the increased volume of research and the diversity of funders means that greater clarity is needed as to what funding council research support should cover.

It says: "The nearer to the market the research and the more focused it is on financial benefit for business, the fuller the economic cost the customer should expect to pay."

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It gives four principles to help universities decide which research will bring in funding council overhead money:

• Research should contribute to the UK science and engineering base, with results published openly and intellectual property rights retained by universities
  
• The funder should have a research strategy that takes account of priorities of other key funders such as the research councils and charities
  
• Research should be of the highest quality and be peer reviewed
  
• Funding should not be restricted systematically to any specific research group, with open competition among eligible researchers.

Diana Garnham, chief executive of the Association of Medical Research Charities, said: "AMRC has worked for many years for recognition of the high-quality contribution charities make to UK medical research and for them to secure dual support funding."

The strategy resulted from the internal government cross-cutting science review and was launched on Tuesday by the Department of Trade and Industry, the Treasury and the Department for Education and Skills.

It will apply in England. Scotland, Wales and Northern Ireland will decide which policies to implement.

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Other recommendations include extending PhD funding to three-and-a-half years and paying science, engineering and mathematics students ?40 a day to teach in secondary schools.