BUSES will become “extinct” in suburbs and villages if a vital grant to local councils is scrapped or slashed, the government has been warned.

MPs and campaigners have raised the alarm after the department for transport (Dft) revealed the £454m bus service operator grant (BSOG) was under review, ahead of dramatic cuts.

The fund reimburses private bus companies for 80 per cent of the fuel duty costs on services which might otherwise be financially unviable - and might, therefore, be axed.

Scrapping the BSOG altogether would force up fares by an inflation-busting 6.5 per cent and lead to the withdrawal of one in 14 services, ministers have admitted.

Worse, bus passengers face a ‘double whammy’ because a second crucial fund - the rural bus subsidy grant - is likely to be diverted into other council services, it has been claimed.

The region’s authorities received more than £4m from the fund this year, including allocations to County Durham (£1.09m), Darlington (£111,299) and North Yorkshire (£2.5m) But the government has lifted the ‘ringfencing’ of the grant - which means cash-strapped councils will be tempted to dip into the pot to release funds for other vital services.

The Campaign for Better Transport (CBT) predicted a “vicious circle of reduced commercial and subsidised services, fare rises that drive away users, leading to further service cuts”.

Stephen Joseph, the pressure group’s executive director, added: “Buses to rural areas and to housing estates would be the most vulnerable to cuts.

“There is a real danger that buses will become extinct outside the centres of cities and towns, as funding for them will be under threat.”

The Department for Transport (DfT) faces having to make cuts of around 25 per cent to its £15.9bn budget, after a bruising spending review in the autumn.

Norman Baker, the Lib Dem transport minister, acknowledged the threat to the BSOG in a written parliamentary answer, which said it was being examined to “ensure that it offers the best value for taxpayers’ money”.

The row is likely to increase pressure on ministers to rethink their guarantee to retain free bus passes for every pensioner, regardless of wealth - at a cost to taxpayers of £1bn a year.

Legislation to allow local authorities to finally seize control of local bus services from the private operators finally come into force at the start of this year.

But councils across the region reluctantly decided not to adopt the powers, because of fears of lengthy legal battles with the bus firms that would undermine their efforts to improve services.

Meanwhile, the big five operators - Arriva, FirstGroup, Stagecoach, National Express and Go-Ahead - have been accused of stinging passengers and councils with high profit margins.