Last month Scotland’s proud tradition of bus manufacturing suffered a devastating blow. Alexander Dennis – the UK’s largest bus manufacturer and a significant Scottish employer – announced it would cease manufacturing operations in Scotland, putting up to 400 jobs at risk.

At first glance, the closure might seem like a casualty of uncontrollable global market forces. But dig deeper, and the story becomes more troubling: a failure of policy that could – and arguably should – have been prevented. 

Alexander Dennis has long been one of Scotland’s rare industrial success stories. With roots dating back over a century, the company was formed through the merger of several British bus builders and is now a global name in public transport manufacturing. Once one of Scotland's few domestically owned industrial champions, the Larbert-based firm was acquired by Canadian multinational NFI Group in 2019.

Despite this, the company has long been a source of regional pride, employing around 1,000 staff across its sites in Larbert and Falkirk. The firm has been recognised for its commitment to workforce development, winning 'Employer of the Year' at the TEC Partnership Apprenticeship Awards 2025.

More recently, the company has positioned itself as a leader in the transition to zero-emission mobility. In 2023, it invested in repurposing its Larbert factory to expand production of electric and hydrogen buses, cementing its role in the future of clean transport – not just in Scotland, but internationally.

By most measures, Alexander Dennis is the kind of company the Scottish Government should be supporting: high-skilled, future-facing, and a fair employer. When the Scottish Government launched new subsidies to roll out green buses in Scotland, the company looked set to lead the way. But things didn’t quite turn out that way. 

In 2021, Transport Scotland launched the Scottish Zero Emission Bus Challenge Fund (ScotZEB) – an ambitious new £100m subsidy scheme aimed at accelerating the roll out of net zero bus infrastructure in Scotland. The scheme had noble ambitions: to fund “forward-thinking companies” to “help make zero-emission vehicles the default choice for all operators.” The policy should have been a win-win: accelerating Scotland’s net zero ambitions while expanding a successful domestic manufacturing base.

The programme ran in two phases. In 2022, ScotZEB1 awarded £62 million in subsidies to nine bus operators. In 2024, ScotZEB2 followed with a further £42 million to a consortium led by a company called Zenobē. But when the contracts were awarded, any hopes for a Scottish industrial renewal were met with a cold reality. 

Of the 523 vehicles ordered under the fund, only 162 – less than a third – were awarded to manufacturers based in Scotland like Alexander Dennis. The remaining two thirds were awarded to manufacturers based overseas, including 287 – over half – in China.

Shortly after the ScotZEB2 results were announced, Alexander Dennis announced that 160 Scottish jobs were at risk of redundancy. In announcing the cuts, the company took aim at the way zero-emission bus subsidies were allocated, arguing that the process had disproportionately favoured competitors from “lower-cost and lower-security economies.” It accused the Scottish and UK Governments of encouraging an “uneven playing field working against British bus manufacturers” by favouring cheaper foreign competitors while doing little to protect domestic firms. These are strong allegations, but do they have any merit?

In the case of ScotZEB Phase 2, the scheme’s evaluation criteria were weighted primarily towards financial cost (40%) and deliverability (30%), with market transformation accounting for 20% and ‘wider community and decarbonisation benefit’ – including job creation – receiving only a 10% weighting. With the assessment weighted so heavily towards financial criteria, it is easy to see how the process may have benefitted overseas manufacturers. 

Compared to UK-based companies, manufacturers in countries like China face lower labour costs and weaker employment rights, allowing them to substantially undercut Scottish firms on price. While the tender process did include criteria for job creation and wider community benefits, the weighting of just 10% was far too low to counterbalance the cost advantages of overseas suppliers. As a result, the design of the scheme arguably prioritised the cheapest bids, regardless of where the resulting buses were made or the domestic economic benefits they could generate. In this context, Alexander Dennis was lucky to win any contracts at all.  

The firm also alleged that it was placed at a further disadvantage due to the asymmetric application of the Scottish Government’s Fair Work criteria. These relate to conditions attached to public grants, contracts and other funding to promote fair work practices such as paying the real Living Wage. While Alexander Dennis has long been a proud Fair Work employer, its overseas rivals are not. This is because Fair Work conditions are typically only applied to UK-based workers involved in contract delivery. As the company stated in September 2024:

Things went from bad to worse on 11 June when Alexander Dennis announced it was planning to shut down its Scottish manufacturing altogether, a move that would result in up to 400 job losses. The news follows the closure of nearby Grangemouth refinery, where another 400 workers were recently made redundant – together representing a devastating blow to the region. Once again, the company cited what it perceived to be an unfair policy landscape, alleging that the current approach “does not allow for the incentivisation or reward of local content, job retention and creation, nor does it encourage any domestic economic benefit.” 

The ripple effect of this announcement is already being felt: on 11 July a major supplier to Alexander Dennis, Greenfold Systems, made 80 workers redundant after a key contract between the two firms was withdrawn.

At a time when Scotland should be expanding its green industrial base, jobs are instead being lost as work is offshored abroad. To make matters worse, the process is being underwritten by taxpayer-funded subsidies. While Scotland may have led the way in setting bold ambitions for low-carbon transport, poor policy design means it has well and truly missed the bus when it comes to building that future at home.

While the fate of Alexander Dennis is troubling in its own right, it also reflects a much deeper problem facing Scotland in a rapidly changing world. As nations across the world take increasingly assertive steps to strengthen domestic supply chains, Scotland often seems asleep at the wheel. While the Scottish Government has set ambitious climate goals, it has yet to implement the ambitious industrial policies needed to deliver them. As such, there is a growing danger that the economic benefits of Scotland’s green transition flow not to Scottish firms and workers – but their equivalents in other countries. This issue extends far beyond green buses. 

Although Scotland has scaled up renewable energy generation over the past decade, this has not yet translated into large-scale job creation in the way that was promised, in large part due to the country’s weak industrial base. Although Scotland's offshore wind sector is set to grow rapidly over the coming decades through ScotWind, the vast majority of the associated manufacturing will take place overseas. As a result, much of the economic value – and many of the jobs – generated by Scotland’s renewables boom will trickle out of the country. With employment in Scotland’s oil and gas sector set to shrink substantially over the coming decade, the failure to translate green growth into domestic job creation represents a serious problem. 

This is not an issue that can be fixed overnight. It reflects decades of chronic underinvestment in Scotland’s economy and a laissez-faire approach to industrial decline. But if Scotland is serious about reversing this trend, we cannot afford to stand idly by while other countries eat our industrial lunch. In an increasingly volatile world small economies like Scotland face a stark choice: either act boldly to shape markets, or be shaped by global market forces.

Given Alexander Dennis’s unique expertise and capabilities, every avenue should be explored to safeguard jobs and maintain manufacturing capacity in Scotland. With the company recently extending the consultation period on potential job losses, the Scottish Government should actively engage with all relevant stakeholders to identify a viable path forward.

It is also critical that policymakers reflect on lessons learned to prevent similar economic own-goals in the future. If Scotland is to maximise the domestic benefits of the net zero transition, public funding and procurement must be used strategically to support and grow domestic industry – not undermine it. With regards to contracts like ScotZEB and ScotWind, it may seem obvious that the Scottish Government could simply mandate the use of domestic suppliers in procurement and subsidy contracts, often referred to as ‘local content’ rules. However, the UK’s Subsidy Control Act 2022 explicitly forbids these measures, as do World Trade Organization rules (although the latter hasn’t stopped some countries using them). Moreover, there may simply not be any Scottish firms with the capacity and skills to deliver the work in many cases. 

This does not mean the Scottish Government is powerless to act, however. In the case of the ScotZEB fund, the tender could have done more to prioritise wider public value considerations over financial cost, which domestic firms would be better placed to meet. Conditionalities could have been used more assertively to deliver social and environmental benefits, applying equally to both domestic and foreign firms. The key point is that how public contracts are designed is not neutral – the aim should be to deliver sustainable and inclusive outcomes by design.

This should not be done in isolation, however. Most critically, the Scottish Government must embrace a more assertive, ambitious and coordinated approach to industrial strategy. While its recent Green Industrial Strategy represents a welcome first step, it must go substantially further to rethink the role of the state – redesigning public tools, institutions and capabilities to steer and shape the economy towards common goals. 

We have partnered with one of the world’s leading thinkers on industrial strategy, Professor Mariana Mazzucato of the UCL Institute for Innovation and Public Purpose, to explore what this means in practice. Our second research paper setting out a mission-oriented industrial strategy for Scotland will be published over the coming months.