Moves for greater state control as Abellio is stripped of control of Scotland's railways

ScotRail had previously admitted it would not hit its punctuality targets until that very month.

Transport Secretary Michael Matheson has indicated there could be a franchise bidding war, but with a process that could include a public sector bidder such as CalMac. He indicated the preference would be for Holyrood to have full power over the rail network so that it could abolish franchising and decide the extent to which the public sector runs Scotland's railways.

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But he said the Scottish Government's hands "are tied at the moment" because the only current option is to have a franchise bid for rail services in Scotland - while having the scope for a public sector body to be involved.

"I want to get rid of franchising, so that we can have a public sector service in Scotland that reflects the needs of the people of Scotland. We will do everything that we can to get the powers here in Scotland to determine the future shape of Scotland’s railway," he said.

But he acknowledged it could cost a public sector organisation some £10 million to make a bid without any guarantee of winning.

"That is why we need to get rid of franchising for rail services: it is costly, complex and does not serve the public well. We need to have all the powers over rail in this Parliament in order to determine the way in which we run and shape our rail services," he said.

The announcement came a day after the Herald revealed ScotRail had delivered its poorest monthly performance in a year - off the back of introducing a new fleet of greener electric trains to help create "the best railway Scotland has ever had".

But in ScotRail's latest monthly report, the incidents reported that caused significant delays and cancellations in the latest monthly period which runs from November 10 to December 7 were all issues that were the responsibility of Network Rail, which runs the rail infrastructure.

The Scottish Government had been pushing to have all matters devolved to ministers north of the border before Boris Johnson swept to power in last week's General Election.

READ MORE: The 12 days of Christmas chaos at ScotRail

But like the Scottish Government, the Conservatives have lost patience with the franchise system they introduced in the 1990s.

Keith Williams, the former British Airways boss, has been beavering away with “root and branch” review of the railways with hopes raised that sweeping change was in the offing next year. He has already said that the franchising model has "had its day" and is expected to usher in a complete overhaul.

He has so far stressed a continuing relationship between the public and private sector, albeit done differently.

And Mr Matheson saw some rays of hope in talks he has held with Mr Williams.

"Given my discussions with Keith Williams and what I have heard are the key issues that have been set out in the Williams review for the UK Government to consider taking forward, I hope that the UK Government will take those issues forward.

"In the end, that is a political decision, but if the UK Government does that, it could allow us to change things fundamentally in a way that addresses the issues... and which is much more passenger focused and aligns the issues more effectively. I am certainly prepared to work with members from across the chamber, should the powers be devolved to this Parliament to allow us to do that."

The current franchise agreement required ministers and Abellio to revisit the level of government subsidy provided for the remaining five years of the contract to decide whether additional subsidy should be paid, a process known as “rebasing”.

And Mr Matheson said after careful analysis of information provided by Abellio, it was felt a proposed increase in government subsidy for the service would not deliver sufficient benefits to passengers or the economy.

“Any changes to the level of subsidy paid by the government must deliver new benefits for passengers and taxpayers and whilst there have been improvements in recent years, the proposed changes were not sufficient to justify additional subsidy," said Mr Matheson.

“Of course, the Scottish Government must plan for the future of our rail services, beyond 2022 and work is already underway to examine the options open to us in this regard.

“Longer term, this Government has already made clear its position that the current franchising regime, which is a matter reserved to the UK government, has failed and it is widely accepted that the rail industry, as a whole, must embrace reform.

“The best way to deliver this is through the transfer of all rail powers, which would allow us to work together to find the right solution for our railways in future – properly integrated and fully aligned with the public interest and Scottish Government policy.”

Dominic Booth, managing director of Abellio UK, said the firm was "hugely disappointed" by the decision and that it was the "wrong choice for Scotland's railway and its customers".

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He said: "Abellio has invested more than £475m in new and upgraded trains, added 23% more seats for customers and created more than 500 extra jobs in Scotland since the start of the franchise in 2015 - the biggest investment in trains and stations in over 150 years.

"Our offer to Transport Scotland would have delivered an improved service for our customers at a reduced cost to the taxpayer."

Dr John McCormick, chairman of the Scottish Association for Public Transport has said if the franchise model is to be stuck with, there must be changes to ensure proper scrutiny so that the running of Scotland's railways does not just go to "unrealistically low" bidders.

He pointed out that greater state control had already been ushered in under the previous Conservative government London North Eastern Railway, is a train operating company owned by the Department for Transport, unlike most UK train operating companies and operates the long-distance inter-city services on the East Coast Main Line from London King's Cross to North East England and Scotland.

"A state owned organisation should be able to put in a bid for a commercial contract," he said. "But the idea of Calmac running trains? I think they should get to grips with running the ferries, first of all before they are allowed to think about it."

Mr Matheson later said he that "as has been the case for previous contracts" current staff transfer would transfer to any operator that takes over a franchise. 

Mr Matheson said later: "I believe that the decision that I have advised the Parliament of today in respect of the ScotRail franchise is the right one for passengers, communities, the economy and taxpayers. It is, of course, necessary to plan for the future provision of ScotRail services, and I can confirm that work has already been undertaken to examine the options open to the Scottish ministers after the current contract comes to an end. This will, of course, mean regular engagement with trade unions and other stakeholders.

"Looking further ahead, I fully expect that changes in the structure of railways, not just in Scotland but across the whole of the United Kingdom, will take place as a consequence of the UK rail review undertaken by Keith Williams.

"While we await the outcome of the review, I very much hope that it will see an end to the present complex and costly franchising system for rail services.

"Once we know that [the outcome], we will have a better idea about the scope that we will have to shape rail services in Scotland in a way that reflects the needs of the Scottish people and of the Scottish railway network.

"For now, services will, of course, continue to operate. Abellio ScotRail remains contractually committed to delivering quality rail services. This Government has made significant investment in our railways and we will ensure that we maximise the benefits for passengers and taxpayers."