Transport for London (TfL) has secured a bailout from the government worth about £1.8bn a fortnight after Sadiq Khan accused Boris Johnson of a “blatant lie” after the prime minister claimed the London mayor had effectively bankrupted the tube and bus service in the capital. In a significant win for the Khan, the government has backed down on demands for fare increases, an extension of the congestion zone to cover the entire city and the scrapping of free fares for children and over-60s. The funding is agreed until the end of March, falling short of Khan’s demand for a £4.9bn settlement for the next 18 months to keep tube and bus services going after revenues and passenger numbers collapsed because of the Covid pandemic. The six-month deal means fresh negotiations next spring and another opportunity for a political battle between Johnson and Khan, who has also accused the prime minister of trying to impose a “triple whammy” of punitive charges on Londoners when the pandemic was the sole cause of TfL’s financial problems. Khan said the agreement was not ideal, but added: “We fought hard against this government which is so determined to punish our city for doing the right thing to tackle Covid-19. The only reason TfL needs government support is because its fares income has almost dried up since March.” The exact amount of money involved is subject to passenger revenues in the coming months. TfL said “discussions on longer-term sustainable funding continue”, noting that the congestion charge increase and extended hours agreed in June as part of the first Covid-related bailout would remain in place for the moment. Khan said the negotiations had 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”. He added: “I am pleased that we have succeeded in killing off the very worst government proposals,” which he said would have “hammered Londoners”. After it was accused of being bankrupt two weeks ago, TfL said Khan had inherited a £1.5bn deficit from Johnson’s tenure as mayor. The loss followed the phasing out of a grant that David Cameron scrapped when he was prime minister. TfL pointed out that before lockdown it had been on course to achieve reserve levels of £2.2bn by the end of March 2020, an increase of 31% over the four years since 2016, but passenger numbers and revenue were down 70% year-on-year because of the pandemic. The transport secretary, Grant Shapps, said: “This deal is proof of our commitment to supporting London and the transport network on which it depends. Just as we’ve done for the national rail operators, we’ll make up the fare income which TfL is losing due to Covid. “Londoners making essential trips will continue to be able to use Tubes, buses, and other TfL services, thanks to this government funding. At the same time, the agreement is fair to taxpayers across the country. The mayor has pledged that national taxpayers will not pay for benefits for Londoners that they do not get themselves elsewhere in the country.” He said discussions would continue over the coming months to achieve a “long-term settlement”, which would include London being given “more control over key taxes so it can pay more costs of the transport network itself”. City Hall said current passenger revenue projections meant the bailout was worth about £1.8bn in grants and borrowing. TfL is to carry out cost savings to make up a remaining £160m “gap” based on its forecasts.