Key features of the Green Paper, are expected to include:

* extra funding for schools which hit targets on exams, cutting truancy or exclusions;

* a new grade for “good” teachers who do not wish to take on management duties, with entry to and future progression on the pay scale dependent on annual performance reviews;

* a new leadership grade for heads and deputies, heads of department and advanced skills (“super”) teachers;

* a delay in the promised review of heads and deputies’ salaries until 2000-01, to allow changes to be tied in with those affecting the rest of the profession.

The plans amount to the biggest shake-up in teachers’ salaries and conditions for a generation and could set ministers on a collision course with the main classroom unions. All three have said they would resist any attempt to introduce performance-related pay based on a crude “payment-by- results” system.

However, ministers will be hoping to win round teachers with the details set out in the Green Paper. It is believed they will recommend a mixed approach, with schools being given funding “bounties” in return for meeting agreed targets.

Headteachers will use the extra money - which will be “ring-fenced” - to give pay rises to good teachers, basing their decisions on a revamped appraisal system. Such merit awards will be subject to external monitoring to avoid claims of favouritism.

The Green Paper is based on five principles, designed to modernise the profession: a new pay structure, improved leadership, rewards for excellence, systematic career development opportunities and back-up support.

Plans for a new leadership grade reflect Tony Blair’s concern to act on evidence from the Office for Standards in Education, which has identified weak leadership in one in 10 secondary and one in six primary schools.

Last week, the Education Secretary said teachers would be backed by an extra 20,000 classroom assistants by 2001.

David Blunkett is expected to underline the importance of strong leadership when he unveils the proposals next week.

Besides the planned leadership grade, he will point to other Government initiatives, including a new national college for school leadership and the promise of salaries of up to Pounds 70,000 for the best heads.