Trade and industry secretary Stephen Byers is looking closely at a study by fellow Labour MP Ian Pearson that recommends better salaries for top academics, ending the flat rate for tuition fees and encouraging and rewarding academic entrepreneurs.
Dr Pearson, MP for Dudley and a visiting fellow at Warwick University, argues the changes are essential since "it is clear enough that Britain in the next century will compete as much through its university system as its industry".
Mr Byers is so interested in the report, due to be published later this year, that he has asked officials to a seminar next month to discuss its recommendations.
Dr Pearson said he would be "quite happy" to see differential pay scales for academics - including those who show a high degree of success in linking up with business and industry.
"If we are going to retain the best of them here, we have to pay them the going world rate. It is simply laughable that we have these disparities in academic pay with the United States, for instance - they cannot be sustained. As it is at the moment, anybody really good has to simply accept they will lose out financially if they decide to become an academic - that is not right," said Dr Pearson.
The report calls for greater competition between universities to bring them more in line with institutions in the US and elsewhere. Dr Pearson said: "In British academic circles the widely held view is that there is vigorous competition for students, for faculty and research funding and sponsorship. It is wrong."
Greater competition at the national level is first necessary if universities, especially the elite institutions, are going to be better able to handle the growing threat to their status from overseas institutions, he said.
Dr Pearson is in favour of an end to the blanket Pounds 1,025 tuition fee to reflect the realities of the higher education market. "The fee as it is will bring in extra resources for the system but a flat-rate fee system, irrespective of where you go to university, is hardly sustainable in the long term and will have to change."
He believes more private sector involvement - including the launch of more new private universities - and increased competition "are the way forward".
More direct support is also needed to encourage "profit-
oriented thinking" among academics. The MP argues this could be achieved, for instance, by changing academic contracts to build in a day a week during which the academic does commercial work for private benefit.
There should also be more financial rewards for deans, administrators, researchers and other staff who bring in money.
"Such schemes would send out the right messages about changing the way things are done and looked at and help address salary gaps," said Dr Pearson.