The Australian government has admitted that it intends to break a pre-election commitment to the nation's universities and slash spending on higher education.

More than two months after the conservative administration of prime minister John Howard took over the treasury benches, education minister Amanda Vanstone has finally told vice chancellors that major reductions in expenditure will be made in the August budget.

At a meeting with the Australian Vice Chancellors' Committee last week, Senator Vanstone confirmed fears that universities could expect a sharp reduction in their annual federal grants - possibly up to Aus$500 million (Pounds 250 million).

This will almost certainly cause a significant rise in the number of large classes, cuts in student enrolments, cancellation of many courses and research programmes, savage staff retrenchments - and no federally-funded pay rise for academics.

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It will be the first time in the memory of vice chancellors that higher education has experienced a fall in Commonwealth spending. Between the election in 1983 of the first of a succession of Labor governments and Labor's last full year in office in 1995, total spending on universities increased by 63 per cent in real terms while enrolments rose by more than 70 per cent.

That era of expansion ended on March 2 this year when Australians gave Mr Howard an overwhelming mandate for change - although few voters would have realised how quickly the government would be breaking its promises. The prime minister claims harsh action is necessary because of an Aus$8 billion "hole" in Australia's current account deficit - a hole that must be filled over the next two years.

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Senator Vanstone, however, has given vice chancellors the opportunity to lessen the impact - if they can come up with ways of saving money themselves.

Academics have already begun a campaign of industrial action - including a planned nationwide 24-hour strike on May 30 - in support of the pay rise. Although the government does not want a cut in student numbers, AVCC president Fay Gale said this was one of the few options available.

"We have never had to face this kind of thing before," Professor Gale said. The meeting with Senator Vanstone had been "tense" but at least vice chancellors now knew the worst. Most left for their universities in a state of shock.