SCOTLAND'S bus companies have warned that fares will be pushed even higher this year as the Scottish Government's flagship concessionary travel scheme for the over-60s and disabled people runs out of money.

Operators issued the warning after complaining about a failure to reimburse them for millions of passenger journeys, as demand for free travel exceeded the funding available.

They claim it has now left them facing an expected shortfall of more than £7 million for the next financial year.

The Confederation of Passenger Transport UK, representing more than 1000 bus and coach firms, said fare hikes and cuts to services were on the cards because its members could no longer afford the losses.

It is calling for a full review of eligibility to contain the Scotland-wide scheme's costs, which have spiralled since it was introduced by the Labour-Liberal Democrat coalition in 2006.

Director George Mair said the current funding arrangements were "simply not sustainable" as bus firms were now being asked to subsidise and deliver the scheme.

He said: "You would not see this kind of system in place in any other sector. If Tesco was to be asked tomorrow to provide free bread without being properly reimbursed for it, the public would think it a ridiculous situation.

"The Scottish Government has made it compulsory for bus operators to take part in the scheme in the full knowledge that they will not be fully reimbursed."

He said operators were bearing higher fuel costs and a 20% cut to the Scottish Government's Bus Service Operators Grant from next month.

"These factors, along with the under-funding of the concessionary travel scheme, mean that operators may be forced to meet these additional costs by increasing fares for the fare-paying public or reducing service levels," added the confederation.

Although popular, the scheme has faced repeated warnings that it is unsustainable in the long-term.

The ageing population is driving up the cost of offering unlimited travel to the over-60s, disabled and, more recently, veterans.

Transform Scotland, a charity that campaigns for improved public transport, accused the Scottish Government of "punishing" bus users. Director Colin Howden said: "These threats to the future of the concessionary fares scheme come swiftly after the Government's decision to slash funding for the Bus Service Operators Grant."

He added the Government this month had reported a 6% slump in bus use in just one year, adding that "cuts to the concessionary fares scheme would only make things worse".

In 2010, public spending watchdog Audit Scotland forecast the cost of free bus travel could increase to more than £500m by 2025 unless restrictions were placed on eligibility, while Holyrood's Public Audit Committee has also called for a full review in order to limit rises.

Government funding for free bus travel has been capped at £180m this year, increasing to £187m for each of the next three financial years. However, the cost to bus companies is expected to top £187m for the 2011/12 financial year, with the overspend due to be clawed back from operators in March.

Age Scotland called on the Government to "properly fund" free bus travel, warning of resentment from other bus users whose fares would go up. A spokesman said it was prepared to accept an increase in eligibility, from 60 to 65, as was the case south of the Border. He said "we'd have concerns if it was not being properly funded".

A Scottish Government spokesman said funding for concessionary travel had been increased every year despite Westminster cuts.