Some words provoke instant responses: "performance" is one, "modernisation" another. Battered by overuse and infused with tawdry associations, they provoke instant hostility. So their appearance in the white paper and grant letter understandably generated an immediate critical response from many battle-hardened sceptics. But this government was always going to bang on about performance and modernisation. What matters now is who interprets the policies and how funding is attached. In the run-up to publication, higher education unions and employers lobbied hard for, and won, substantial flexibility.

The grant letter does not mention "performance-related pay", stating simply that institutions should commit themselves "to rewarding good performance". Omission of the hated PRP is not accidental. There are many acceptable ways of rewarding performance, such as through promotion.

Immediate consolidation of existing human-resources funding into core funding is also a welcome signal that government has been convinced that employers and unions can be trusted to negotiate a package that will reward performance. The new human resources funding is much lower than we had urged, but it will be consolidated once agreed by the Higher Education Funding Council for England. The unions will be urging the use of far more of the combined and consolidated human resources funding directly for pay.

Higher education employers cannot now hide behind claims that their hands are tied by government. We can negotiate a national pay structure that will include explicit measures to reward good teaching. The unions will oppose any kind of PRP. Indeed, Hefce's own review of human resources strategy funding said it probably would not work. But unions will happily discuss pay structures that improve career progression and provide consistent, fair, objective and transparent measures to reward performance.

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There remains the worry that Hefce may decide to interpret the letter more restrictively. However, informal discussions indicate that Hefce has been impressed by the success of the new national negotiating machinery, and it would make little sense for the council to sideline this. Hefce will, of course, need to develop criteria that reflect the letter, but when we reach a national agreement based on these, it makes sense for institutions to use it rather than reinvent the wheel locally.

So what about "modernisation"? This aspect of the white paper is, frankly, galling, especially to the "modern" post-1992 universities and higher education colleges that have wrought miracles over the past decade. Their record would put most of UK industry to shame. If productivity can be measured by the doubling of student numbers and the trebling of research activity against a 40 per cent cut in resources, then UK Higher Education plc needs no lessons in good management. Higher education is successfully forging closer links with business, but the problem lies more in the reticence of industry.

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If modernising means rapid adaptation to new technology, a proliferation of new courses and immense changes in teaching and research organisation, then we need no lessons in modernisation, either. Higher education unions and employers have already modernised employment frameworks.

Treasury talk of the need for "more effective" management is equally galling. Natfhe is campaigning for better governance structures in post-1992 institutions and the lifting of outdated controls. The Department for Education and Skills should tackle that kind of management issue, not give ill-informed lectures. What higher education really needs are the resources to manage properly, to fund expansion, to pay staff decently, to reduce workloads and bureaucracy, and to give disadvantaged students the extra help they need. The 19 per cent increase in funding will help but, frankly, it is not enough.

Tom Wilson
Head of universities' department
Natfhe