Bus subsidies in the spotlight in Scotland’s first case under the Subsidy Control Act 2022

In this article, Ward Hadaway‘s Head of Public Funding, Alexander Rose, looks into arguments which will be brought forward in McGill’s Bus Service Limited v The Scottish Ministers and evaluates whether this litigation is likely to lead to greater scrutiny for bus subsidies.

What circumstances have given rise to the claim by McGill’s Bus Group Limited?

The Scottish Zero Emission Bus Challenge Fund provides grants to support the rollout of zero emission buses and the associated charging and/or refuelling infrastructure needed to run them.  The first two rounds of the Scottish ZEBRA programme saw grants of c. £102m awarded to bus companies and is reported to have helped enable the deployment of over 500 new zero emission buses in Scotland.

The third round of the fund (called ScotZEB3) was launched in December 2025 and closed to applications in early 2026.  McGill’s Bus Group sought a £4.3m grant to purchase 33 zero emission buses from the manufacturer Alexander Dennis, but was rejected, with the Scottish Government instead choosing to allocate grants to rival bus firms Ember, Stagecoach, Rock Road, Lothian and First Bus.

What are the grounds for challenge raised by McGill’s Bus Group?

The first round of ZEBRA grants in Scotland were made under the Scottish Zero Emission Bus Challenge Fund (SC10357).  In December 2022, the Scottish Government registered an update to this scheme, under the name the Scottish Zero Emission Bus Challenge Fund (ScotZEB) (the “Subsidy Scheme“) which increased the budget to £150,000,000 and extended the duration to 31 December 2028. The updated scheme was given registration number SC10759.

The scheme description on the National Transparency Database for the Subsidy Scheme expressly stated that “to receive a subsidy under the scheme, beneficiaries must be part of a consortium“. Awards made under the second round of the Scottish ZEBRA fund were required to come forward as part of a consortium, but for the third round this was not a requirement.

McGill’s Bus Group Limited submitted a Section 76 Pre-Action Information Request to better understand the approach taken by the Scottish Government. The response provided in May 2026 clarified that the Scottish Government regards using the Subsidy Scheme to make the awards to be in line with the requirements of the Subsidy Control Act 2022. This is on the basis that the Subsidy Scheme is a legacy scheme which has benefited from permitted modification in accordance with s. 81(3) of the Subsidy Control Act 2022. In addition, the argument was made that the third round of the fund operated “within the scope of the overarching ScotZEB subsidy control assessment” and therefore no “separate or additional subsidy control assessment was required for subsequent phases of ScotZEB”.

McGill’s Bus Group argue that:

1. the modification to the Subsidy Scheme was made prior to the Subsidy Control Act 2022 coming into force, so should not constitute a “legacy subsidy modification” under Section 81(3)(a) of the Subsidy Control Act 2022
2. the award of the grants either should have been made by way of a new subsidy scheme, or individual assessments ought to have been made taking account of the Subsidy Principles at Schedule 1 of the Act and the Energy and Environmental Principles at Schedule 2 of the Act
3. if the award was made outside of the Subsidy Scheme, the argument is made that it ought to have also been the subject of a referral to the Competition and Markets Authority and the failure to do so renders an award prohibited under Section 31 of the Act
4. no transparency entries on the National Subsidy Database have been made, in breach of Section 33 of the Act.

McGill’s Bus Group is reported to be seeking £5m damages. However the Notice of Appeal makes no reference to this sum, instead it specifies that McGill’s Bus Group  is seeking specific declarations that the Scottish Government has not acted in line with the Act, a change to the ScotZEB3 decision to award the grants, any other order which the Competition Appeal Tribunal regards to be appropriate and their litigation expenses covered.

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Take Me There

What arguments is the Scottish Government expected to use to defend the case?

The Scottish Government is expected to defend the challenge.

The main focus of the Competition Appeal Tribunal case is expected to be whether the conditions of the scheme have been satisfied, noting the argument that this is a legacy scheme and therefore whether any modification was in line with the Act. The Subsidy Control Statutory Guidance states that “legacy schemes are schemes that were in existence before the Act came into force“. Section 81(3) of the Act allows modifications to be made (such as extending the term by up to six years or increasing the budget by up to 25%) without requiring a new principles assessment to be undertaken.

Therefore the Scottish Government is expected to argue that by the time the Act came into force, the Subsidy Scheme had been correctly modified and that the award aligned with the scheme conditions.

As a secondary line of argument, the Scottish Government is expected to argue that the Principles assessment which was used to create the scheme demonstrates that each of the Principles had been properly considered.

What does the challenge mean for bus subsidies and the use of subsidy schemes?

This is a high profile challenge which has already been covered by the BBC, the Times and the Telegraph. This increases the likelihood of more challenges under the Subsidy Control Act 2022 as organisations become aware that this is a route that can be used to try to overturn adverse decisions, particularly those made by way of funding competitions. There will also be greater scrutiny of ZEBRA subsidies and other measures involving State support for public transport.  Furthermore, whilst the case is outstanding there will be uncertainty around the use of legacy schemes, particularly those which have undergone modifications.

Conclusion

The case of McGill’s Bus Service Limited v The Scottish Ministers will be keenly watched by those involved in the award of subsidies because it will clarify how subsidy scheme conditions apply and how modifications may be made.  So far all challenges under the Subsidy Control Act 2022 have been decided in favour of the public authority making the funding decision, but McGill’s Bus Service Limited will be hoping to set a precedent by becoming the first organisation to successful challenge the award of a subsidy under the UK’s regime.

Ward Hadaway is a leading law firm for issues relating to public funding. Our lawyers have experience of successfully advising on audits, state aid cases and challenges brought on the basis of the Subsidy Control Act 2022. We have offices in Birmingham, Leeds, Manchester, Newcastle and Teesside.