Only the best departments receive significant amounts of money

It plans to replace the controversial Research Assessment Exercise, which allocates "quality-related" research funding, in 2008.

Some academics had called for the RAE to be abolished, saying funding discrepancies between departments were leading to course closures.

The government said the working group would aim to set up a "simple" system.

That system would be "metrics-based", the Department for Education and Skills (DfES) said.

The quality of research at higher education institutions is currently evaluated by a periodic assessment exercise - the RAE.

It is done by peer review, and money is targeted at the highest-performing departments.

Universities choose which of their staff to enter for the RAE. Their research work is then graded from a level 5* downwards.

The DfES said it would maintain its "dual support funding", which funds specific research projects.

'Game-playing'

Higher education minister Bill Rammell said the working group would help develop a simpler and less burdensome system of funding allocation.

"We will be working with the UK higher education sector to ensure that a new system meets their needs," he said.

The working group is to be chaired by Professor David Eastwood, chief executive-designate of the Higher Education Funding Council for England (Hefce), and Sir Alan Wilson, director general for higher education at the Department for Education and Skills.

Its remit is to find a replacement for the RAE which will:

• reward excellence in research of all types, not just quality-related
• encourage collaboration
• support inter-disciplinary research
• minimise the burden on higher education institutions
• apply equally to all institutions
• be simple, transparent and cost-effective
• result in a funding stream to an institution
• allow institutions to plan effectively

Professor Eastwood said it was important to have an early debate about the future of research assessment after 2008.

"Any new model would need to have widespread support from the academic community and build on the demonstrable successes of the RAE which has evolved over 20 years."

Hefce said it "welcomed the government's continuing strong commitment to research and innovation".

'Pointless form filling'

The shadow higher education minister, Boris Johnson, said: "The current RAE is driving academics to distraction and it is high time it was reformed."

Its demands were continually cited as a reason why lecturers had no time to teach students properly, he said.

"Whatever the government puts in its place must allow universities to get on with serious research without pointless form filling and the production of mountains of academically worthless papers."

Two years ago the Association of University Teachers called for the RAE to be postponed, because it said universities were manoeuvring some staff viewed as weaker into non-research positions in order to influence their funding allocations.

And a report into the system by Sir Gareth Roberts referred to the "poaching" of top researchers and "game playing" by institutions.

But Universities UK, which represents vice-chancellors, opposed the replacement of the RAE.