The government is preparing to expand performance-related pay for academic staff.

Ministers want to create a free market in higher education, which will lead to successful universities going from strength to strength and weaker ones being forced to merge or close.

However, the plan to link pay to performance will be strongly resisted.

University teachers say it is "the single most divisive policy" the government could introduce.

Estelle Morris will today set out plans to narrow the pay gap between school teachers and further education lecturers.