The Stop the Tram Extension Coalition (STEC) includes Tory and independent councillors, local businesses and the Scottish Socialist Party.

They claim it is “misguided” to spend millions on extending the tram route at a time of council cutbacks and say the Capital would be better with a bus-led transport system.

Councillors are due to decide in March whether to go ahead with the proposal to add an extra three-mile section to the existing tramline, taking it form York Place down Leith Walk and on to Newhaven.

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But the campaigners claim the disruption caused by the project will have a “catastrophic” impact on the livelihood of Leith’s independent traders, Lothian Buses employees and people across the city.

They also argue the council should not be making a decision on the extension before Lord Hardie’s inquiry into the initial tram fiasco has reported.

Campaign spokesman Charlie Tams said: “The Stop the Tram Extension Coalition has been formed to actively oppose the council’s misguided decision to spend millions of pounds extending the tram, at a time of huge public sector cuts in the Capital. We believe that Edinburgh’s future public transport needs can be best met by its publicly own bus company and award-winning green fleet.

“Most importantly, a bus-led public transport future would free up the £165m earmarked for the tram extension – meaning more money could be better invested in new schools across Edinburgh.

“We are taking our message directly to city politicians and to the people of Edinburgh, where we will be campaigning across the city centre, in addition to engaging directly with concerned local businesses.”

Conservative transport spokesman Nick Cook praised Unite members for establishing the campaign coalition.

He said: “The broad political support enjoyed by STEC speaks to the huge opposition many working people have to the SNP and Labour’s misguided and costly decision to extend the tram.

“With the multi-million-pound Hardie Inquiry already set to cost more than the Iraq War Inquiry, it is a double slap in the face to taxpayers to even consider extending the tram before its findings are known.”

The council has said it plans to borrow the money for the tram extension and use a £20m extraordinary dividend from Lothian Buses to pay for the loan.

SSP leader and former MSP Colin Fox said he had nothing against the trams but the project was not a priority.

“There are 165 million better places to be spending that money in the city,” he said. “The citizens of Edinburgh are scratching their heads about extending a vanity project in a city crying out for affordable housing.

“Ninety per cent of the city won’t see any benefit, yet they will be expected to pay for it through increased bus fares and deteriorating bus services.”