A £50 million carrot is being dangled before Welsh universities and colleges in an increasingly desperate bid by the funding council to encourage them to merge and to form strategic alliances, writes Tony Tysome.

The ÌÇÐÄVlog Funding Council for Wales has allocated £8 million to its reconfiguration and collaboration fund for 2004-05. A further £13 million is expected to be available for each of the following three years - making a total package of £47 million.

The funding council has said that the money will be used to back "well-founded mergers" as well as "major proposals" for institutions to work together in clusters or networks of excellence for teaching, research, innovation projects and collaboration with industry.

The council hopes the promise of financial backing will encourage more institutions to follow the example of Cardiff University and the University of Wales College of Medicine, which sealed a merger this month.

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So far, other attempts to merge, including a plan to join the University of Wales Institute Cardiff and the University of Glamorgan, have faltered.

Jane Davidson, Education Minister in the Welsh Assembly, had warned that the sector would have to prove that it is making significant progress towards the assembly's reconfiguration targets if it was to secure any extra funding.

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Welsh vice-chancellors have condemned a statement from Ms Davidson, in which she unveiled plans to withhold core funding, as well as the additional money for mergers, unless there was progress towards reorganising the sector.

Ms Davidson also said that she intended to use money that was promised as compensation to Welsh universities for not introducing top-up fees in 2006 as a further lever to encourage reconfiguration.

The size of this "income foregone" is yet to be calculated. But the sum is expected to be significant, as it is designed to prevent Welsh universities' income from slipping further behind English institutions as a result of the assembly's decision not to introduce top-up fees until at least 2007.

Ms Davidson told The Times Higher that, in addition to mergers, she wanted to see more collaboration at subject level to help make Welsh departments more competitive in the next research assessment exercise.

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Phil Gummett, the HEFCW's chief executive, said: "Developments across the higher education scene in the UK and internationally are raising the stakes in terms of competitiveness in research and teaching. Higher education institutions in Wales need to respond urgently to these challenges."