SERCO is to lose the £800m Caledonian Sleeper service franchise which operates overnight rail passenger services between Scotland and London seven years early.
The current 15-year franchise was awarded to the outsourcing company Serco in May 2014, with the 15-year contract coming into effect on March, 2015.
Transport Minister Jenny Gilruth said that the decision by the SNP government to terminate the Serco franchise next year came after the firm proposed an undisclosed change to the agreement.
The SNP said it welcomed the termination of the Caledonian Sleeper contract which brought about the opportunity to "consider bringing the iconic service into public control" like with ScotRail.
The Scottish Greens also called for the service to be brought into public ownership.
The decision comes after the Scottish Government was accused of “inconsistency and double standards” by not including the Sleeper franchise in its nationalisation plans.
Transport Secretary Michael Matheson announced in March, last year that ScotRail franchise would be switched to state control when Abellio’s ten-year contract was terminated three years early after performance issues.
ScotRail is now under the direct control of the Scottish Government through an "arms-length" company. The move has raised questions over whether the Scottish Government now intends to nationalised the sleeper service.
Serco tried to renegotiate the terms of the contract through a process known as rebasing.
Ms Gilruth said the proposal was rejected on the grounds of "not representing value for money to the public".
She said: "I can confirm that a notice was served today which confirms that the Scottish Ministers will terminate the Franchise Agreement with Serco Caledonian Sleepers Limited on June 25, 2023.
“Work is underway to determine arrangements for the continued provision of Caledonian Sleeper rail services beyond June 25, 2023 and this will be updated to Parliament once determined.
“It is worth noting that Serco Caledonian Sleepers Limited has, broadly, delivered well and significantly improved Caledonian Sleeper services over the last seven years.”
The Scottish Conservatives' shadow transport minister Graham Simpson said Ms Gilruth had to be give greater detail over why the contract is being terminated "given that Serco have performed well".
He added: "There must be a suspicion that this is driven by political ideology rather than what is best for customers."
Unions have long been pushing for the Sleeper service to be returned to public ownership.
The Sleeper franchise was part of ScotRail until it was split into a separate contract in 2015.
SNP MSP Fiona Hyslop, the former economy secretary said: “The Caledonian Sleeper has been well-served by Serco over the seven years it has run the service and it has broadly improved it over that time.
“It is unfortunate that a deal has not been reached to continue the contract with Serco, but these contracts need to deliver value for money for the Scottish public. Its termination presents an opportunity for the Scottish Government to consider bringing the iconic service into public hands.
“The Scottish Government has already successfully brought Scotrail under public ownership and doing the same with the Caledonian Sleeper presents an opportunity to continue to improve the service provided to those travelling overnight between Edinburgh and London.
“There will be a formal process that will need to take place, but this presents another opportunity to bring Scotland’s railways into Scotland’s hands.”
Scottish Greens transport spokesperson Mark Ruskell MSP said: “This would seem to be a logical opportunity to look again at the potential to bring the Caledonian Sleeper operations into public ownership.
“In particular at such a time of acute financial hardship for people up and down the country, and when our climate actions have never been more important, this seems a sensible and progressive idea to be looked at.
“I will be contacting the Transport Secretary to see how this can be explored and actioned further.”
The service normally operates trains six nights a week between Aberdeen, Edinburgh, Fort William, Glasgow, Inverness and London.
In March, 2015, Nicola Sturgeon unveiled the new look exterior of the new Secro franchise, which was set to transform the famous cross-border rail journey into a "hotel on wheels".
The First Minister was in Inverness to launch the the service's new White Stage branding which was to become a symbol of the new Sleeper franchise.
The Scottish Government took the decision to create a standalone Sleeper franchise separate from the ScotRail umbrella for the first time as part of an ambition to revamp the overnight London-Scotland service into "a tourist rail experience to rival the best in the world".
Serco at the time also ran Australia's iconic transcontinental India Pacific service, linking Sydney and Perth, and the Dubai Metro.
Serco posted a 25% jump in full-year pre-tax profit, having won £700m in Covid-related contracts worldwide in 2021, taking its total pandemic-related income to £1.1bn.
The London-listed firm posted a pre-tax profit of £192.2m in 2021, up from £153.3mn the previous year.
Investors were treated to a 72% increase in their full-year dividend, with their 2.41p-per-share payout for the year worth £29m.
The company promised to “continue on our path” of increasing returns to shareholders, including through share buybacks to a value of up to £90m.
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