Italy is set to pay the UK £140m to avoid being kicked off Britain’s railways – despite running the nation’s most punctual train service. State-owned Trenitalia, which operates the c2c network linking Essex and the City, is understood to have struck a deal in principle with the UK Government. It will pay the penalties to “stay in the game” as a curtain falls on 25 years of rail franchising. The finer details of an agreement are currently being thrashed out in tightly-guarded talks, according to industry sources. A Government announcement will be made by the end of January. Rail franchising, where rail operators pay a fee to the Exchequer in return for collecting fares, was scrapped by Grant Shapps, the Transport Secretary, in September. Fixed fee contracts will be gradually introduced in their place, along with an outsourcing model similar to that used by the NHS and schools However, Treasury officials feared that by swapping franchise agreements for outsourcing contracts, loss-making operators could be let off the hook for additional payments owed to the Exchequer. They instructed counterparts in the Department for Transport to collect deposits from the train companies. The Sunday Telegraph revealed in October that ministers were demanding £500m in so-called “termination payments” from five operators to move onto new contracts called “Ermas”.