Transport secretary says the award will help the north realise its full economic potential and make a real difference to customers

Fleets of better, faster trains, thousands of extra seats and improved rail services across the north of England have been promised as the winners of two major rail franchises were announced.

Smart ticketing will be introduced and free Wi-Fi will be rolled out by the end of the decade. German firm Arriva takes over the Northern franchise from April 2016 until 2025 – beating Dutch-owned rival Abellio – with a pledge to phase out the widely condemned Pacer trains that serve regional routes by 2018. FirstGroup will retain the TransPennine Express until 2023, although without its current partner, Keolis, from next April.

The train operators will work closely with the region’s newly established transport body, Rail North, as the government pledges more devolution alongside a transformation of the rail network, despite delays to promised electrification work.

The transport secretary, Patrick McLoughlin, said: “As a one nation government we are committed to closing the economic gap between north and south. This deal, and the joint management of the franchises, will bring the northern powerhouse to life.

“Arriva Rail North Limited and First Trans Pennine Express Limited went far beyond our requirements with exciting, ambitious plans that will make a real difference to customers, and – coupled with our commitment to push ahead with electrifying the vital Transpennine route – will help the region realise its full economic potential, ensuring it has a modern 21st century transport system. This is fantastic news for the north.”

Rail upgrades have become a totemic issue for the government and the chancellor, George Osborne, in particular, after he put a proposed high-speed network in the north at the heart of his vision for a “northern powerhouse”. But the pledges were undermined by the shelving of promised electrification schemes, which have been officially restarted – if delayed – after a review published alongside the autumn statement.

The decision to enforce the removal of Pacer trains was taken in an explicit ministerial direction by McLoughlin in February, overruling advice from civil servants that it would represent poor value for public money, saying that “uncomfortable and low quality” vehicles were having a negative impact on rail’s reputation.

Arriva will increase capacity by 40% across its northern network, including a higher-quality Northern Connect service on longer-distance routes. It will also significantly boost Sunday services in the north.

Chris Burchell, the managing director of Arriva’s UK Trains division, said: “We will be investing more than £1bn to deliver a step-change in quality for customers and dramatically improving services, stations, information and ticketing. Our aim is to be the communities’ local railway and to leave a positive lasting legacy for the north of England.”

Winning the TransPennine franchise outright will be an important boost for First Group, whose fortunes have faltered in recent years, not least since having the lucrative west coast franchise slip away in the 2012 bidding fiasco.

First will bring in 220 new carriages, equivalent to 44 trains, and worth more than £400m, providing 125mph services across the network, as well as introducing new and additional services for Scotland, including a direct Liverpool to Glasgow service from December 2018.

It has also promised discounted advance fares for 16- to 18-year-olds and jobseekers.

Tim O’Toole, the chief executive of FirstGroup, said: “Our plans include investment in new and refurbished trains on every part of the network, with millions more seats available, free Wi-Fi and simpler smart and mobile ticketing, allowing us to build on the success we have had over the past 11 years, in which we have more than doubled passenger journeys on the network.”

First will pay £303m in premiums to the government over the course of the franchise. Arriva will receive a total subsidy of £1.79bn, a reduction on the current deal with Abellio.