FirstGroup has reached an agreement with the Government over the termination of two rail franchises, the transport giant said.

The Department for Transport (DfT) has accepted that no payment is required in return for scrapping Avanti West Coast’s contract as the brand was “performing well prior to the pandemic”, according to the Aberdeen-based company.

But a contribution of £33.2 million is required by FirstGroup to end South Western Railway’s (SWR) deal.

The negotiations were part of Emergency Recovery Measures Agreements (Ermas) introduced due to the collapse in demand caused by the coronavirus crisis.

Under the terms of Ermas, the DfT has taken on the financial liabilities of rail firms and is paying them up to 1.5% of their pre-pandemic operating costs.

This will leave taxpayers with an £8 billion bill for the current financial year, with a further £2.1 billion allocated for 2021/22.

Ermas also contain provisions to allow operators to talk away from franchise contracts if a deal can be reached on what additional payments they should make.

Having reached this stage, FirstGroup is now negotiating with the Government over the terms of directly-awarded management contracts for Avanti West Coast and SWR.

These would see it continue to run services when Ermas expire for SWR in March 2021 and Avanti West Coast in March 2022.

These new directly-awarded management contracts will focus on passengers and operational performance, with a more appropriate balance of risk and reward

FirstGroup chief executive Matthew Gregory said: “We welcome this agreement, which marks a further evolution of the contractual framework for our SWR and Avanti train operating companies, both in the context of providing resilient services throughout the coronavirus pandemic and also a more sustainable long-term approach.

“These new directly-awarded management contracts will focus on passengers and operational performance, with a more appropriate balance of risk and reward.

“We look forward to working constructively with the DfT to make this a reality, and to use our expertise and understanding of the needs of our customers to deliver improvements that we know passengers want.”

He said FirstGroup is operating around 90% of pre-pandemic rail services, adding: “Passengers and employees alike can be confident that our trains are safe.”

The group saw its loss before tax narrow to £100.1 million, from £187.1 million in the first half of last year. Revenue dropped more than 12% to £3.1 billion.