Serco’s Caledonian Sleeper contract is to be terminated next year

The Scottish Government has canceled Serco’s contract to run the Caledonian Sleeper seven years earlier than planned after failing to agree new financial terms for the historic but unprofitable overnight train.

Scottish Transport Secretary Jenny Gilruth said on Wednesday that the devolved government had exercised an option to terminate the franchise agreement with outsourcing firm Serco in June next year.

The Caledonian Sleeper operates trains between London and Scotland, with services running to and from destinations including Edinburgh, Glasgow and the Highlands.

The contract change raises the prospect of the Scottish Government stepping in and nationalizing the sleeper train service next year and follows a decision to take train operator ScotRail into public ownership during the pandemic.

Mark Ruskell, transport spokesman for the Green Party, which governs with the Scottish National party in Edinburgh, said the removal of Serco should be the “first step towards nationalisation”.

Serco began a 15-year contract to deliver the service in 2015 and pledged to raise the quality of the experience as part of a £100m improvements, half of which were funded by the Scottish Government.

The changes included replacing aging 1970s carriages with new rolling stock, some of which included en-suite bathrooms and double beds.

Serco said the franchise had been “loss-making over the life of the contract” after the new trains were badly delayed and initially extremely unreliable, while the coronavirus pandemic left the company with severely reduced passenger numbers.

The company has lost £65m since it took over the running of the trains eight years ago.

Serco said the 2014 deal included an option for the company to present new financial arrangements to the Scottish Government halfway through the franchise.

It said the two sides were “unable to agree these revised terms”, which would have put Caledonian Sleeper on a “more sustainable financial footing”.

But the Holyrood Government said no decisions had been made on nationalisation. Serco raised the possibility of returning under a new financial arrangement and said it would “continue to work with Transport Scotland on options for the future management of the service”.

The service was championed by outgoing Serco chief executive Rupert Soames, who used it to travel to his Scottish home near Fort William. He announced last month that he would step down from the company at the end of this year.

Night trains in Britain can trace their history back to the mid-19th century, but the Caledonian Sleeper is one of only two remaining, along with a service connecting London and Cornwall.

The 12-hour “Highlander” service to Fort William is particularly popular with tourists and rail enthusiasts. The sleeping service was traditionally used by Scottish MPs and peers commuting to and from Westminster.

John Whitehurst, managing director of Serco’s transport business, said the company had “completely transformed the service” since winning the contract.

“The service that Serco provides today is widely recognized as being second to none, providing hotel standard service and accommodation that is known and admired around the world,” he said.

Gilruth said Serco had “broadly delivered good and significantly improved Caledonian Sleeper services over the past seven years”.

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