After falling sharply during lockdown, the number of buses running in London has recovered to about 60% of normal © Getty Images

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Sadiq Khan and Boris Johnson have struck a rescue deal worth up to £1.8bn for Transport for London to keep bus and Tube services in the capital running for another six months.

The agreement, announced early on Sunday — just hours ahead of a crucial deadline — will prevent the collapse of TfL until the end of the financial year.

But discussions will continue on a new funding package for the following year, with lockdown restrictions expected to play further havoc on the group’s main income stream.

Mr Khan, the Labour mayor of London, has been locked in an acrimonious dispute with transport secretary Grant Shapps over the bailout in recent weeks.

Mr Shapps had threatened to take direct control of TfL unless Mr Khan accepted a package of unpopular measures, including significantly extending the traffic congestion zone and slashing fare concessions, in return for the rescue package. In turn, the mayor threatened to plunge the body into a form of public-sector insolvency called “section 114”.

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A recent rescue package for the railways did not come with any such strings attached, prompting Labour claims that the government was seeking to undermine Mr Khan. Mr Johnson, the prime minister, accused the mayor of leaving TfL’s finances in poor shape before the crisis hit in the spring.

Under the terms of Sunday’s bailout Mr Khan will not have to implement a bigger congestion zone or increase fares by more than the “RPI inflation + 1 per cent” figure already agreed in the early summer.

But the London mayor will have to sign up to £160m of cost savings over the six months.

Furthermore he has agreed that in future TfL will pay itself for concession fares for under-18s and pensioners, which are not given elsewhere in the country.

To help fund those concessions — worth about £270m a year — he is considering a rise in council tax for Londoners.

That decision on whether to increase the TfL element of the Greater London Authority’s “council tax precept” must be made by January 2021, when Mr Khan will also present a plan for the long-term financial sustainability of TfL.

“The agreement is fair to taxpayers across the country,” said Mr Shapps. “The mayor has pledged that national taxpayers will not pay for benefits for Londoners that they do not get themselves elsewhere in the country.”

The new lockdown in England — announced on Saturday evening — will put new pressure on TfL’s finances, which have been shattered by a collapse in passenger numbers during the pandemic.

TfL’s finances are far more reliant on ticket sales than other major public transport networks around the world. 

The number of people riding on the Tube fell to as low as 5 per cent of normal levels during the lockdown earlier this year, but has since crept back to just over 30 per cent, while buses have been running at about 60 per cent of normal numbers.

Sunday’s funding package will provide TfL with an extraordinary support grant of £905m as well as incremental borrowing from the Public Works Loan Board of £95m.

However that £1bn figure is predicated on passenger numbers at 65 per cent of their pre-crisis levels.

The government agreed that the package could be increased to £1.8bn if passenger revenues turn out to be much lower — in line with TfL’s forecasts.

Other measures agreed in an earlier TfL rescue deal in May will be maintained: an increase in the congestion charge to £15 and the temporary removal of free travel during the morning peak for older passengers.

Mr Khan said the agreement was “not ideal” and said it was “far from ideal” that the next rescue package would be negotiated in the run-up to next year’s London mayoral elections.

“We fought hard against this government which is so determined to punish our city for doing the right thing to tackle Covid-19,” he said. “The only reason TfL needs government support is because its fares income has almost dried up since March.”

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