The government has said London transport fares will have to rise, as it reached an agreement over a £1.6bn bailout with Transport for London. TfL will receive £1.1bn as a cash grant plus another £505m in loans, according to reports on Thursday night. In return, TfL will carry out a review of its finances and have government officials on its board. Addressing the daily Downing Street briefing on the coronavirus, the transport secretary, Grant Shapps, said Londoners would eventually need to pay higher fares to help finance TfL. Shapps said the government did not want “a situation where people outside of the capital are unfairly carrying the burden, by which I mean, sadly, fares do end having to rise with inflation”. The mayor of London, Sadiq Khan, earlier threatened to cut tube and bus services unless the government stepped in with a grant, after the capital’s transport authority burned through £1bn of its cash buffers. He said TfL would have to cut services in order to stay within legal funding limits unless it received a cash injection. Shapps said: “We are now in a situation where I am optimistic of having a solution with TfL and the mayor of London.” However, he added that this was a short-term plan and it was not yet known what might happen if TfL’s financial crisis went on for a long period. An unprecedented fall in passenger numbers has deprived TfL of 90% of its fare revenues, while demand for advertising in tube stations and on buses has fallen as companies across the economy cut back spending. TfL, which runs the London Underground, buses and some parts of the capital’s rail network, has so far maintained services in order to allow key workers and those who cannot work from home to continue to travel. However, it has furloughed 7,000 workers in order to cut costs, while coping with staff illness and criticisms of overcrowded trains. Before the pandemic, TfL had cash reserves of £2.2bn, well above the two months’ operating costs amounting to £1.2bn that it is legally required to hold. However, the authority was hours away from hitting those limits imposed under the Local Government Act, Khan said. Sources have previously suggested TfL will need £2bn in government money to survive until September without cost cuts. “We’ve been involved in weeks and weeks of negotiation with the government and it’s really hard in getting support from them,” Khan told LBC radio. “Being blunt, today is the last day. Unless the government today gives us confirmation of the grant that we need, then the consequences could be quite severe and ramifications for all of us will be huge. “Because we can’t go bust, we’ve got to make sure we’ve got the money to pay for services. The only way to balance the books is to cut services.” Downing Street said it was engaged in talks with TfL. The government has already in effect nationalised private railway operations and bailed out bus services to allow them to continue operating during the pandemic. Any cut to transport services in the capital could undermine the government’s efforts to encourage people to return to work as it attempts to kickstart an economic recovery. In his address to the nation on Sunday, Boris Johnson said people should “avoid public transport if at all possible”, but said services would still be operating according to “Covid-secure standards”.