BUS passengers in Scotland face paying 10% more for journeys this year as firms are squeezed by Government funding cuts and soaring fuel costs, an industry-funded report has warned.

The latest hike is expected to result in a drop in passenger numbers and more unprofitable routes being axed or scaled back to cut costs, according to transport consultancy TAS.

Its bleak prediction came ahead of a Parliamentary debate today in which MSPs will demand a reversal of a 20% cut in the Bus Service Operators' Grant (BSOG), which provides firms with a discount on the fuel they use.

TAS found bus fares had increased by nearly 10% over the last two years, slightly behind inflation, and the average fare in Scotland was around £1.70 – 21p cheaper than the UK average.

The hikes coincided with a drop in passenger numbers, with 438 million passenger journeys made in Scotland in the 2010/11 financial year, down 6% on the previous year. Buses still carry more than five times as many passengers in Scotland as trains.

Steve Warburton, one of the report's authors, said he expected fares in Scotland to be around four to five percentage points above December's inflation rate as operators sought to recover higher operating costs.

However, he said the situation was better than in England.

"We do think there will be a drop in passenger numbers due to resistance to fare increases but this will be offset to an extent in Scotland by funding for concessionary travel," he said.

Scottish Government funding for the bus industry is due to drop from £255 million this year to £249m for 2012/13 and will be frozen for a further two years, though the drop in BSOG has been partially offset by funding for the concessionary travel scheme, which provides free bus journeys to elderly and disabled passengers, as well as veterans.

The Confederation of Passenger Transport UK, which represents more than 1000 bus and coach firms, said: "Like our colleagues in England, Scottish operators are facing a 20% cut in BSOG and, due to the capped concessionary scheme budget, will not receive the agreed level of reimbursement for carrying concessionary passengers.

"Operators faced with cuts of this magnitude, particularly in a period of economic downturn, will have to consider fare levels and service cuts. The industry in Scotland is innovative and enduring and will continue to work on providing attractive and affordable services and growing passenger numbers."

Labour MSP Richard Baker said the BSOG cut was "bad news" for passengers adding: "A rise in bus fares will hurt the people who can least afford it. The decision also threatens bus services on which many communities across Scotland depend.

"It has resulted in fares in Aberdeen rising by on average 8.5% and, with fares likely to rise elsewhere, this creates a further barrier to public transport."

However, Transport Minister Keith Brown said it had maintained funding despite Westminster cuts. He added: "We would expect the bus industry in Scotland to act responsibly whenever they are looking to set bus fares."

Mr Brown said a change in the BSOG system in April, which sees funding for the mileage of services rather than fuel used, would encourage efficiency and benefit rural areas.