The best universities in England will be allowed to charge students more than £9,000 per year for tuition under a new plan published by the government that links improvements in teaching quality with fee increases.

In the biggest shakeup of higher education since fees were introduced nearly 20 years ago, a number of university agencies could be scrapped and replaced with an Office for Students (OfS) that will rank universities based on student satisfaction, teaching quality and employment outcomes.

Universities that receive high ratings will be allowed to increase their tuition fees by the rate of inflation, according to the Department for Business Innovation and Skills green paper. The consultation document also hints that staff pay and promotion could be linked to teaching performance. Fees have been frozen at £9,000 a year since 2012, when the government raised the cap from just over £3,000.

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Jo Johnson, the minister for higher education, said the changes were needed because the high international reputation of British universities masked inconsistencies. “While there is a lot of excellence, there is also, as the sector acknowledges, patchiness and variability in and between institutions. We’re helping the sector address that patchiness so we drive up the quality of teaching for everybody.

“Students should come out of their university years feeling they’ve got value for money for their time there. Unfortunately, there are too many students coming out feeling that they haven’t, and I want to address that.”

Dame Julia Goodfellow, president of the Universities UK lobby group and vice-chancellor of the University of Kent, said: “The recognition of high-quality teaching in our universities is a welcome step. But we must ensure this exercise is not an additional burden for those teaching in our universities and that it provides useful information for students, parents, and employers.”

The change was opposed by the National Union of Students. “Teaching should always be a key focus of higher education, but the NUS is adamant the teaching excellence framework should not be linked to an increase in fees. Students should not be treated like consumers,” said Megan Dunn, the NUS president.

Facebook Twitter Pinterest ‘We must ensure this is not an additional burden for those teaching in our universities,’ said Dame Julia Goodfellow, president of the Universities UK lobby group. Photograph: Graham Turner/The Guardian

Johnson said universities needed to better equip their graduates for their careers as part of the new measures within the proposed teaching excellence framework. “We have too many people coming out of university and winding up in non-graduate jobs. It’s the role of our universities to equip people to fulfil their potential and to participate fully in society, whether going on to further study or going into great professions such as teaching or other graduate jobs,” Johnson said.

The proposals were less radical than many in the sector feared, although universities will have to provide more data in a clearer format to students about their courses, including teaching methods and expected career paths.

Under the new structure, the Higher Education Funding Council for England (Hefce) will disappear, with many of its functions taken over by the new OfS, which will also absorb the Office for Fair Access, which is responsible for overseeing improving access by under-represented groups. The new framework will grade universities and their departments on a scale from one to four, using published data from surveys of student satisfaction, graduate employment and degree completion rates, among others.

“This is looking like a Trojan horse for increased tuition fees and brings the danger of creating a two-tier system that could brand some universities as second class,” said Gordon Marsden, Labour’s shadow higher education minister.

Wendy Piatt, director general of the Russell Group of leading research universities, warned: “The autonomy of our universities is crucial to their success. It is vital that any regulation is risk-based and proportionate and does not add to the current burden or stifle innovation.”

The green paper also outlines a fast-track process for new institutions to be awarded a university charter, including making it easier for new private bodies to enter the sector.

“It is not clear if the new government has learned anything from the previous round of market entry that saw over £1bn of public money go to students registered at institutions with slight track records of higher education teaching,” said Andrew McGettigan, an expert in university funding. “How many qualifications have been achieved for that money? No one knows.”

There was disappointment that the green paper made no reference to part-time students, whose numbers have plummeted since the introduction of £9,000 fees. “If the government is serious about driving social mobility, then part-time study and lifelong learning must form a key part of these reforms,” said Peter Horrocks, the Open University’s vice-chancellor.