MINISTERS have confirmed they are to nationalise the key Caledonian Sleeper service which operates overnight rail passenger services between Scotland and London.
They have confirmed that outsourcing firm Serco will finally lose the £800m franchise seven years early and are to take over control in June.
Transport Minister Jenny Gilruth confirmed the move five months after first indicating that it wanted to terminate the Serco franchise next year after the firm wanted more money to run the service.
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.
The contract that was signed in 2014 included a ‘rebase clause’ that meant that, after seven years of the 15-year franchise, Serco could present to the Scottish Government alternative financial arrangements for the remaining years of the franchise.
Serco had hoped to revise the terms of the contract to put the service on a "more sustainable footing" saying that it had been "loss-making over the life of the contract".
Ms Gilruth said in answer to a parliamentary question in October that a new contract with Serco does not represent “value for money to the public”.
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The SNP said at the time that 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.
It came after the Scottish Government last year took over the running of most train services in the country following the end of Abellio’s tenure in charge of ScotRail.
Serco had warned ministers that the franchise had always been loss-making after it was first announced it was being stripped of the Sleeper contract.
But the Scottish Government appeared to do a U-turn as the transport minister later said she was constrained by UK law to consider the continued use of Serco and was making a further assessment over a direct award to them.
Now Ms Gilruth has confirmed that the Sleeper is to come under state control.
Under UK legislation ministers had the option to put the contract out to tender, or make a ‘direct award’ back to Serco or to a company owned and controlled by the Scottish Government – the latter effectively being public ownership.
Ms Gilruth told MSPs that the Sleeper service will follow the same path as ScotRail and come into public hands.
She said: "For over 150 years a Sleeper service has run from Scotland to England. The current Caledonian Sleeper serves 43 Scottish stations. From Montrose to Kirkcaldy, from Crianlarich to Fort William, the Sleeper is about more than just Scotland's cities, it allows communities across Scotland a service to access London and beyond.
"Earlier this year, I undertook to provide Parliament with an update on the successor arrangements for the Caledonian Sleeper. This follows my decision not to rebase the franchise agreement with Serco last October.
"I can announce that from June 25, this year, the Caledonian Sleeper will be provided by an arm's length company of the Scottish Government, in line with our operator of last resort duty.
""That means that from the expiry of the current franchise Caledonian Sleeper services will be provided within the public sector by an arm's length company owned by the Scottish Government.
"This will provide stability and certainty for passengers and staff and place the operation of Caledonian sleeper services in public hands at the end of the current contract.
"And I'm confident that under these arrangements, we can build on our experience of public sector operation to ensure that the bright future we see for the Caledonian Sleeper is protected."
She went on to describe the current Sleeper as "world class" and said that it had surpassed any other train company in the UK in its recovery from the pandemic.
She said its revenues over the last year outstripped pre -performance and its forward bookings "were stronger than ever".
But the move has been questioned by the Scottish Conservatives' transport spokesman Graham Simpson who suggested that it was ideologically motivated.
He said he had previously pointed out how successful the service had become under Serco.
"She just said the Sleeper has in her words surpassed any other train company in the UK in its recovery from the pandemic. She says we see a service which is now thriving. She calls it a world class service. There can be no other conclusion other than that this is an ideological decision," he said.
"Jenny Gilruth said nothing about how this world class service can be improved under the Scottish Government. She has made no case at all for this decision. If it's about value for money, then perhaps she can answer this, has she requested or received a costed proposal from Serco for a direct contract award. And if she hasn't, which I suspect is the case, how can she claim or demonstrate that she's demonstrating value for money for the Scottish taxpayer."
The move was welcomed by the Scottish Trades Union Congress who said ministers had acted in "the public interest".
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“We need to ensure that real, sustained funding is allocated to the Sleeper in addition to our entire public transport network. We must take workers with us on our journey to create a greener, more affordable rail service. This cannot be done on the cheap and we will work with the Scottish Government to continue our journey to net-zero, creating a fairer, more sustainable transport system that works for the public, not the profiteers," said STUC deputy general secretary Dave Moxham.
After Ms Gilruth first set out that Serco would be stripped of the contract last year, John Whitehurst, managing director of Serco’s transport business confirmed they were not able to reach agreement on revised terms, and the the management of the Sleeper was to be handed back to the Scottish Government.
He said: “We note that the Government’s decision not to accept our proposals has not been made due to any performance issues; from Serco’s point of view the service has been loss-making over the life of the contract and the proposals that we made to Transport Scotland were to put it on a more sustainable financial footing. "We will continue to work with Transport Scotland around options for the future management of the service and in the meantime will continue to deliver a world-class service for our guests.”
The decision comes after the Scottish Government was accused of “inconsistency and double standards” by not including the Sleeper franchise in its nationalisation plan.
Transport Secretary Michael Matheson announced in March, 2021 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.
The Sleeper franchise was part of ScotRail until it was split into a separate contract in 2015.
First Minister Nicola Sturgeon tours the Caledonian Sleeper Guest Service Centre in Inverness
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.
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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 then 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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