This paper considers how research in the tertiary sector is currently funded and outlines some of the problems with existing arrangements. It then sets out in greater detail, and critically assesses, the changes proposed in the White Paper. Following this, the paper summarizes the tertiary funding decisions announced in late August 1999 and explores their possible impact on research activity. The final section considers the principles which should guide the funding of research within the tertiary sector and examines alternatives to existing arrangements. For reasons of brevity, no consideration is given to some of the wider issues raised by the debate over the funding of research in the tertiary sector, such as the relationship between research funding and economic performance and the link between research and teaching (see Clark, 1997; Gottlieb and Keith, 1997).