The United Kingdom government is facing questions regarding the funding for its recently announced £2 bus fare cap, as Transport Secretary Heidi Alexander admitted that the specifics of the £454 million allocation have not yet been fully determined.
Alexander stated on Sky News that the details are still being worked out, a day after Prime Minister Andy Burnham reportedly instructed his Cabinet that all new policies must be rigorously costed. This admission has cast doubt on the financial planning behind the initiative, which aims to cap single bus fares nationwide at £2, down from the typical £3.
Concerns have also been raised about the source of the bus fare funding. The government indicated that approximately £400 million will be generated by converting international climate grants to developing countries into loans. While Alexander insisted these loans would have "favorable" terms, it raises the possibility of the UK government needing to borrow funds for lending without a clear return. The remaining portion of the bus fare funding is expected to come from budget underspends within the Net Zero Department.
The £2 bus fare cap is scheduled to take effect in January and remain in place through 2027. This measure follows a similar national cap that was in effect from January 2023 to December 2024, which the current administration deemed unaffordable at the time. Some local leaders, including Burnham, had previously funded extensions of lower fares in their respective areas.
Chancellor John Healey has stated that millions of people will benefit from the reduced fares, asserting that the cost of living measure is funded by savings elsewhere and will not burden taxpayers. However, the lack of finalized funding details for the bus cap comes as another cost-saving proposal, a 5% VAT reduction on domestic electricity bills, is also facing funding challenges.
This electricity bill relief, estimated to cost £850 million, was intended to be funded by eliminating Keir Starmer's ID card scheme. However, Darren Jones, who was recently removed from the Cabinet, has warned that this policy remains unfunded. Healey will now reportedly need to find the necessary funds for the electricity VAT cut in the upcoming Budget, potentially adding further pressure to public finances.
Burnham himself has emphasized the importance of fiscal responsibility, telling his Cabinet that policies must always demonstrate how they will be paid for. He has also stated that the three policies announced this week—ending rough sleeping, the bus cap, and the VAT removal on electricity—are fully funded through reprioritization. He indicated that the government is re-evaluating existing commitments, such as the digital ID project, to reallocate funds towards cost-of-living relief.
In related news, Burnham also appears to have shifted his stance on council housing, suggesting that existing social housing funds will be redirected to council housing rather than providing new funding, despite earlier pledges for a significant construction drive. Additionally, the government has reportedly abandoned plans to end the freeze on tax thresholds, a move that had been personally supported by the Prime Minister but would have incurred significant costs to the Treasury. The freeze, in place since 2022, is currently set to continue until 2031.