Changes to bus pass scheme could drive down firms' profits

The Scottish Government is in favour of retaining the more generous scheme north of the Border, but Scottish Labour leader Johann Lamont made headlines last October by questioning the payment of what she presented as benefits to the wealthy at the expense of poorer Scots. Her speech to the Labour Party conference followed previous calls from the Holyrood public audit committee to make changes to prevent the cost from more than doubling by 2025 as the population ages.

With the country's public finances continuing to deteriorate, numerous observers now believe that cuts to the English scheme are highly likely after the 2015 election. The bus companies currently receive a total of about £1.5 billion each year to pay for free bus passes for older and disabled people, £180m of which is spent in Scotland.

Karl Burns, a transport analyst at Shore Capital, said that the subsidies comprised about a quarter of the sales of the big players. He thought it "likely" that cuts in England post-2015 would be along the lines of the 20% cut to the bus companies' fuel duty allowance, which would knock around £50m each off the top line at Stagecoach and First.

Burns estimated that about one-quarter of these lost revenues would feed through to the bottom line, raising the prospect that annual pre-tax profits might fall by about £11m at Stagecoach and £12m at First. Were the Scottish Government to follow suit, the hit would be several million pounds higher for each company.

Burns said: "If the scheme was to disappear altogether, it would be an absolute disaster for the bus operators. But you would kill off your core vote by taking away their bus pass. More likely is cuts around the edge, in the same way as the fuel duty."

Simon Posner, chief executive of trade body the Confederation of Passenger Transport UK, said it was difficult to discern any clear signal from the Government about the future of the scheme.

He said: "We have almost given up looking at the two-year crystal ball and are focused on the present system. What will the changes be? Pass."

The national free bus pass scheme for older people was introduced in Scotland in 2006 and England in 2008 – just as the economy was collapsing. David Cameron pledged to protect it in the run-up to the 2010 election, along with winter fuel payments, which currently begin aged 60, and free TV licences for over-75s.

However, the Coalition soon modified the system for bus passes, altering the age threshold from the original 60. It is due to hit 65 by 2018 and 66 by 2020, in line with the planned rise to the state pension age.

Scottish Government ministers have repeatedly reiterated their support for keeping the threshold at 60 – a choice that was originally made over 65, for fear that women over 60 would be able to sue on grounds of gender discrimination if they had retired.

Elaine Murray, Scottish Labour's transport spokeswoman, said the party had not yet settled on a policy for free bus passes. But she said: "I'm pretty confident we won't remove free bus passes for pensioners altogether. But we will be looking at the most effective way to provide support, including whether to raise the age to 65."

She also pointed to findings by former Auditor General Robert Black that £34m of the money spent on free bus passes went to people who were still working.

A spokesman for FirstGroup said: "Buses are essential in this economic climate – whether getting people to job interviews, or to the high street. The Government must remember that to rejuvenate the economy you have got to support the bus industry."

Stagecoach declined to comment.