Bus operators and local authorities are at loggerheads over a government scheme that gives pensioners free bus travel amid fears that ministers have seriously underestimated the costs of the £1 billion scheme.

Stagecoach and Go-Ahead are among the operators that have 26 judicial reviews pending against the Department for Transport over disputed payments for concessionary fares for the past financial year.

Transport groups have also made 100 appeals against reimbursements proposed by local authorities for the national concessionary fare scheme, which was introduced in April and allows pensioners to travel across the country on buses free if they have a national bus pass.

The dispute is brewing as bus companies report that record numbers of pensioners are travelling free on their services, using the new national bus pass.

However, the success of the scheme is already in doubt as bus operators are threatening to cut back on services and push fares up sharply for other passengers, saying that they are not being sufficiently reimbursed.

Keith Ludeman, chief executive of Go-Ahead, which has six judicial review cases pending, said: “We want fair recompensation for carrying people free. If we get only 48 per cent of the average single fare that means that 52 people in every 100 are travelling free. When fuel is going up as fast as it is, that is just not economic.”

In Scotland and Wales, 75p in the pound of the average bus fare is reimbursed to the bus operator, but in England the rate varies between 48 per cent and 75 per cent.

Stagecoach Group said there were serious concerns that the reimbursement formula developed by the Department for Transport was inadequate and did not take into account the fact that some areas, including coastal southern counties, have many more pensioners living in the operator's area than the national average.

“There is no national formula for reimbursing operator costs, which has resulted in a postcode lottery on funding. The rate of payment can change dramatically from one bus stop to the next when a bus crosses the district boundary,” a spokesman said.

In some areas the reimbursement paid to bus operators for carrying concessionary passengers was not sufficient to cover basic costs and had sometimes been cut year on year.

Stagecoach said: “This underpayment could have a serious impact on bus provision across the country, leading to higher fares, service cuts or both. As a result, we have taken legal advice on these issues and are seeking action against the Department for Transport appeals decisions.”

Caroline Green, a senior policy adviser at the Local Government Association, said: “This has been a problem for a couple of years but it looks like it is getting much worse since the concessionary fare scheme was extended nationally.”

She said that local authorities have had no clear guidance from the DfT and in many cases were negotiating the reimbursements in the dark. Ms Green added that some local authorities were facing enormous shortfalls in their budget.

Tyne & Wear had a shortfall of about £5 million, Brighton & Hove estimates it at about £3.5 million and Nottingham had reached £1.8 million since April.

“Central Government has provided about £1 billion of funding for this scheme but the costs seem to be higher. It is difficult to say what the shortfall will be but we want the Government to get some accurate data on how much the scheme is costing,” Ms Green added.

The Department for Transport said it was spending about £1 billion a year on concessionary travel, with about £212 million extra annually from this year.

“This funding is based on generous assumptions about pass take-up and anticipates the increased demand in areas like coastal towns.”

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