Tube and bus fares in London would rise as part of a coronavirus Government bailout, Transport Secretary Grant Shapps has indicated.

Transport for London (TfL) has been in talks with ministers for several weeks over a grant, as it requires £3.2 billion to balance its proposed emergency budget for 2020/21.

On Thursday, Mayor of London Sadiq Khan warned that TfL would need to reduce services unless an agreement was reached by the end of the day.

Mr Khan has frozen single fares on the London Underground, buses, DLR and trams since he became mayor in May 2016.

But speaking at the daily Downing Street coronavirus media briefing, Mr Shapps said it was “very important” that as part of a rescue package “we don’t end up in a situation where people from outside the capital are unfairly carrying the burden”.

He warned that consistent fare freezes mean “more money isn’t going into the system”, stating: “You can’t then have an unfair settlement, where other British taxpayers are effectively bailing out the system.”

Mr Shapps added that he was “optimistic” a “solution” would be reached for TfL.

Earlier, Mr Khan told LBC radio that TfL was legally treated like a local authority, which meant “we have to” balance the books.

“We’d have to reduce the bus services we provide, we’d have to reduce the Tube services we provide, to save money,” he said.

“If we don’t get the deal done today, the CFO (chief financial officer) of TfL has legal duties that he has to follow.”

Mr Khan continued: “At a time when the Government is wanting us to increase services to get into the recovery phase, we might be required to cut services because the Government is failing to give us the grant support we need.”

TfL has been using its cash reserves to meet the £600 million monthly bill of operating services.

A decline in passenger numbers of 95% on the London Underground and 85% on buses due to the coronavirus lockdown has caused a 90% fall in income.

Mr Khan said TfL had been negotiating with the Government for around six weeks.

“I’m unclear about why the Government are waiting until the 11th hour to agree a deal,” he said.

“It is really bad form.”