The NSP was originally designed to provide financial support to undergraduates under the new £9,000 fee regime and was championed by the Liberal Democrats. It will be seen as an embarrassment for the Lib Dems that they have now accepted the scrapping of the scheme for undergraduates.

However, funding support for postgraduates is likely to be welcomed by the sector.

Reductions to the Department for Business Innovation and Skills for 2015-16 add up to a £600 million cut in non-capital spending.

The higher education savings are detailed in a Treasury document published after George Osborne, the chancellor, delivered the spending round announcement.

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In addition to the £100 million NSP saving, the Higher Education Funding Council for England will also be asked to “reprioritise teaching grant spend”, saving £45 million.

That is likely to increase fears that Hefce will be forced to cut “student opportunity funding” attached to poorer students, regarded as higher education’s equivalent of the pupil premium. The funding, worth £332 million for 2013-14, will form the largest chunk of the remaining teaching grant under the new funding regime.

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And the Treasury document also reveals that “student maintenance grants will be maintained in cash terms in the 2015-16 academic year saving £60 million”.

On the NSP, the Treasury document says: “The government will refocus the National Scholarship Programme to support postgraduate students from disadvantaged backgrounds.

“The £50 million fund will be administered by [Hefce]. Hefce will allocate the money competitively to higher education institutions, and will attract additional scholarship funding from the private sector or from the institutions’ own resources.”

What the document does not make clear is that the NSP will be worth £150 million in 2014-15, effectively meaning it will be cut by £100 million the following year.

A spokeswoman for BIS confirmed that the NSP would be postgraduate only from 2015-16 onwards. “There will be a saving from the NSP,” she said.

In January this year, Vince Cable, the business secretary, welcomed rising application figures by saying: “Government is increasing funding for the National Scholarship Programme, which institutions can use to provide benefits including bursaries and grants, from £50 million in this academic year to £150 million in 2014-15.”

Today, Mr Cable said: “I made it clear that I would fight for a deal that ensured the government had a credible growth story.

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“The settlement we’ve achieved for this spending round does exactly that by prioritising and protecting activities that are key to growth.

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“We have secured a robust funding package for science and innovation, skills and apprenticeships and more money for the regional growth fund, creating jobs outside of London, and the Green Investment Bank.”

Reacting to the spending review, Eric Thomas, Universities UK president, said: “This cut to the teaching grant will have real effects in our universities. Universities UK wants to see a fair distribution of those cuts and will work with Hefce and others to minimise any damage to the student experience and to institutions.”

The University of Bristol vice-chancellor added: “The sector’s experience was that the National Scholarship Programme was not succeeding as planned and, while we regret the loss of funding, are pleased to see £50 million going into postgraduate support where it will fill a very important need.”

GuildHE chief executive Andy Westwood said the review “appears to be a ‘better than expected’ settlement for BIS”.

However, he lamented cuts for further education of £260 million and the reduction in Hefce teaching grant. “In both cases it is important that BIS works with both sectors to work out how to make the required savings,” he said.

The National Union of Students pointed out that because NSP funding was due to be matched by universities,the total cut in support for undergraduate students would amount to £300 million a year.

Toni Pearce, the new NUS president, said: “By committing the government to taking money out of students’ pockets through cuts to Nick Clegg’s National Scholarship Programme, George Osborne has turned his back on those for those who are not able to rely on financial support from their families.

“The chancellor has shown a casual disregard for the realities of students’ lives, at a time when more than half worrying not being able to meet basic expenses like food, rent and heating and facing an £8,500 shortfall between the rising cost of living and available financial support.”

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john.morgan@tsleducation.com