The UK government has agreed a £1.8bn funding and financing package for Transport for London (TfL) to make up for fare revenue lost due to the Corinavirus pandemic, but calls are growing for a long-term funding solution.

The last-ditch deal will keep tube, bus and other TfL services in the capital running until March 2021, and London mayor Sadiq Khan claims to have successfully fought off government plans for a huge extension of the congestion charge zone, scrapping free travel for older and younger Londoners and increasing TfL fares by more than previously agreed.

The latest deal follows the government’s initial £1.6bn Covid-19 funding and financing package for Transport for London earlier this summer - a deal described at the time by the mayor as a ‘sticking plaster,’ as he called for a new funding model to be developed and agreed for the longer term.

However, despite providing the private rail operating companies with 18 months of funding earlier this year, the government has refused to give TfL more than a six-month deal and even this has come with conditions. This means another financial agreement will have to be negotiated just before next year’s mayoral election.

As part of the new deal, TfL has agreed to make £160m of savings this financial year, and City Hall will need to raise additional income to protect concessions for older and younger Londoners for future years.

Grant Shapps, transport secretary, said: “Over the coming months, as we look to move beyond the pandemic, I look forward to working with London’s representatives to achieve a long-term settlement, with London given more control over key taxes so it can pay more costs of the transport network itself. This agreement marks the first step towards that, potentially allowing a longer-term, sustainable settlement for TfL when the course of the pandemic becomes clearer.”

Sadiq Khan, mayor of London, said: “These negotiations with government have been an appalling and totally unnecessary distraction at a time when every ounce of attention should have been focused on trying to slow the spread of Covid-19 and protecting jobs. The pandemic has had the same impact on the finances of the privatised rail companies as it has had on TfL and the government immediately bailed them out for 18 months with no strings attached. There is simply no reason why the same easy solution could not have been applied to London.

"This is not a perfect deal, but we fought hard to get to the best possible place. The only reason TfL needs government support is because almost all our fares income has dried up since March as Londoners have done the right thing.”

Andy Byford, London’s transport commissioner, said: “Reaching this agreement with the government allows us to help London through this next phase of the pandemic. We will continue to work with the mayor and the government on our longer-term funding needs.” 

Peter Hogg, London city executive and UK cities director at Arcadis, said: “What this settlement really illustrates is the need for a new, long term funding model for TfL. Both government and the GLA will know that a twice yearly Punch and Judy show to agree a short term funding settlement is not a sustainable way to achieve a world class network. It is important that central government and the GLA use the next months to develop a robust long term funding model for TfL that allows for capital investment, effective operation and - above all - a genuinely world class network that bolsters London’s global competitive advantage.”

The two government special representatives will continue to sit on TfL’s board. A new government-chaired government oversight group will monitor the implementation of the agreement and the sustainability plan.