Summary, conclusion and recommendation

This document presents an Outline Business Case for extending the existing £2 bus fare cap pilot from the Highlands and Islands to the Strathclyde Partnership for Transport (SPT) region, covering Glasgow, Ayrshire, Dunbartonshire, Renfrewshire, Lanarkshire and Inverclyde. The proposal forms the second phase of the Scottish Government’s wider ambition to introduce a nationwide £2 bus fare cap and is intended both as a cost-of-living intervention and as a means of generating evidence to inform the design of a future national scheme.

The business case is framed within the objectives of the National Transport Strategy 2 and the Fair Fares Review, both of which seek to improve the accessibility, affordability and inclusivity of Scotland’s transport system. The proposed extension responds to continuing cost-of-living pressures, elevated transport costs and wider economic challenges. It aims to reduce the financial burden of bus travel, encourage greater public transport use, strengthen social inclusion and provide evidence on the operation of a fare capped system within a dense urban and suburban transport market.

The document sets out a strong strategic rationale for selecting the SPT area as the next stage of implementation. Compared with other Regional Transport Partnership areas, SPT contains by far the largest concentration of Scotland’s most deprived communities, accounting for approximately 65% of all data zones within the 20% most deprived category nationally. The region also displays the highest proportion of households without access to a car and some of the highest levels of bus and rail usage in Scotland. These characteristics make it particularly suitable for assessing the impacts of a fare cap in a large metropolitan environment and provide a useful contrast to the largely rural and island-based Highlands and Islands pilot.

The business case highlights ongoing economic pressures affecting households and transport users. While inflation has moderated compared with previous peaks, consumer sentiment remains weak and fuel prices have increased significantly due to international events. Against this backdrop, reducing bus fares is presented as a targeted intervention capable of delivering immediate support to passengers while contributing to wider policy objectives relating to poverty reduction, economic growth, climate change and public service accessibility.

Four principal objectives are identified for the scheme. These are improving affordability for households, particularly those most reliant on bus travel; increasing public transport demand and encouraging modal shift away from private car use; delivering positive passenger and operator experiences; and generating robust evidence to support the development of a sustainable national fare cap and future reimbursement arrangements.

Early evidence from the Highlands and Islands pilot provides encouragement regarding the effectiveness of the policy. By August 2026, almost 1.3 million journeys had benefited from the fare cap, with average savings of approximately £7.43 per qualifying trip. Initial data from participating authorities suggest substantial increases in fare-paying passenger numbers, although it is recognised that it remains too early to draw definitive conclusions and that seasonal influences may be affecting current results. Nevertheless, the pilot has demonstrated strong operator participation and indicates that lower fares may stimulate additional demand beyond simply reducing costs for existing users.

The options appraisal considered two broad approaches. The first involved supporting operators directly so that passengers pay no more than £2 per journey. The second involved reimbursing passengers after travel or providing some form of direct subsidy. Direct support to passengers was rejected due to significant administrative complexity, poor passenger experience, practical delivery difficulties and heightened risks of fraud or misuse. Consequently, the preferred approach focused on operator reimbursement, consistent with existing concessionary travel arrangements and the current pilot scheme.

Within the operator reimbursement approach, two mechanisms were considered. The first reimburses operators for a proportion of the difference between their standard fare and the £2 cap. The second uses operator-specific average fare yields to determine reimbursement. The assessment concluded that percentage reimbursement performs better in terms of technical feasibility, operator acceptance, risk and alignment with delivery timescales. The yield-based approach would require extensive auditing and additional implementation time, making it unsuitable for rapid deployment.

The socio-economic appraisal suggests that the fare cap would deliver substantial benefits to bus users through lower travel costs and increased accessibility. Modelling indicates that demand could increase by between 9.5% and 38.2% depending on assumptions regarding passenger responsiveness to fares, although the report considers the upper estimate less likely. The central expectation is that patronage growth will be significant but manageable, while also generating benefits through improved mobility, reduced transport poverty and enhanced access to employment, education, healthcare and social opportunities.

The analysis also finds that the scheme is strongly progressive in nature. Existing bus users are disproportionately concentrated among lower-income households, unemployed individuals, people living in deprived areas and several minority ethnic groups. As a result, a large share of the financial benefits generated by the fare cap is expected to accrue to those who face the greatest economic disadvantage. Equality and Fairer Scotland Duty assessments identify overwhelmingly positive impacts, with no significant adverse effects identified for protected groups.

The business case also examines impacts on competing transport modes. The Glasgow Subway is expected to experience limited direct effects because its existing single fare is already below the £2 threshold. Rail impacts are expected to be more significant. The analysis identifies the possibility of substantial modal shift from rail to bus on certain corridors where buses offer a dramatically lower fare. Revenue losses to the rail network are estimated at between £25 million and £45 million annually, although there is considerable uncertainty around these figures. Potential impacts on taxi services are considered likely to be modest, with available evidence suggesting that taxi demand is influenced more strongly by convenience and service characteristics than by bus fare levels.

Financial analysis demonstrates that the total cost of the scheme is highly sensitive to fare levels, passenger demand responses and operator reimbursement rates. Under central assumptions, annual bus-related costs are estimated at approximately £90 million to £105 million. When potential rail revenue impacts are included, total annual costs rise to between approximately £115 million and £150 million. Cost uncertainty remains significant because of the unprecedented scale of the fare reduction and the difficulty of predicting behavioural responses to such a substantial price change. A point estimate of costs is difficult due to the uncertainty but the most sensible approach is to take the mid-point of the entire range of £90m to £150m i.e. – the best point estimate of costs is £120m.

The report concludes that the scheme is likely to demonstrate positive value for money despite these costs. A large proportion of financial transfers are effectively redistributed to passengers through lower fares, while generated demand, wider social benefits and favourable distributional impacts strengthen the economic case. The business case also emphasises that the primary purpose of the intervention is to provide affordability support rather than to maximise conventional economic efficiency measures.

The analysis concludes that a 90% reimbursement rate provides the most appropriate balance between protecting operators from financial harm, maintaining consistency with the existing Highlands and Islands pilot, securing operator participation and controlling public expenditure. While theoretical modelling suggests that a lower reimbursement rate could minimise costs, the report finds that such an approach would expose some operators, particularly smaller and more marginal services, to unacceptable financial risks. Conversely, a 100% reimbursement rate would increase overall scheme costs while creating the potential for windfall gains for operators where patronage increases significantly.

The report therefore recommends that the scheme should proceed using a 90% reimbursement model and that Transport Scotland should retain the ability to provide additional support where evidence demonstrates that individual operators would otherwise be financially disadvantaged by participation. This recommendation is identified as striking the optimal balance between affordability, practicality, fairness to operators and value for money, while also ensuring continuity with the existing pilot and supporting rapid implementation.

In summary, the Outline Business Case concludes that extending the £2 bus fare cap to the SPT area represents a strategically justified, socially progressive and economically credible intervention. The proposal is expected to reduce transport costs for households, support accessibility and inclusion, generate important evidence for national rollout and deliver positive value for money. Subject to implementation through the recommended 90% reimbursement mechanism, the scheme is considered an appropriate next step towards a future nationwide £2 bus fare cap. In the longer term, an alternative reimbursement methodology will be required as the commercial bus market will no longer exist and this will have implications for existing concessionary schemes as well. Additionally, the nature of a cap means that maintaining it at £2 will become significantly more expensive over time, with costs, because of the nature of a cap, rising significantly ahead of fare inflation.