A pot of new cash to develop business and community links will reward institutions with good graduate employment records.
The Higher Education Reach-Out to Business and Community Fund will eventually allocate a total of Pounds 22 million a year to institutions with good business links.
"This is seen in terms of equipping graduates with the knowledge and skills they will need in employment and taking measures to promote the transfer to industry and commerce of knowledge and ideas generated within higher education," a consultation document out this week states.
The fund is provided by the Higher Education Funding Council for England and the Department of Trade and Industry. Earlier proposals for the fund had placed more emphasis on support for technology transfer, science parks and spin-off companies.
However the Department for Education and Employment, which is putting up the lion's share of the money via HEFCE, is understood to have told HEFCE that it wants guidelines on how to apply for the money to focus on projects designed to make graduates more employable.
Education secretary David Blunkett is known to be keen to ensure that universities take the government's "employability" agenda seriously and build links that increase opportunities for work experience.
A HEFCE spokeswoman said: "We want institutions to develop their own strategies for addressing what they see as their local needs. Promoting employability is one of a wide range of measurable outcomes."
Individual institutions that have good records of collaboration with business will receive up to Pounds 1.1 million over four years from 1999-2000.
Institutions without such a record are unlikely to be funded in the first round. HEFCE intends to make the fund a permanent new funding stream within its grant, as a third leg to its teaching and research funds.