Serco’s Caledonian Sleeper contract to be axed next year

The Scottish government has cancelled Serco’s contract to run the Caledonian Sleeper seven years earlier than planned, after failing to agree new financial terms for the historic yet unprofitable overnight rail service.

Scotland’s transport minister Jenny Gilruth on Wednesday said the devolved government had exercised an option to terminate the franchise agreement with outsourcing company Serco in June next year.

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

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

Mark Ruskell, transport spokesperson 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 provide the service in 2015, promising to raise the quality of the experience as part of £100mn of improvements, half of which were funded by the Scottish government.

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

Serco said the franchise had been “lossmaking over the life of the contract” after the new trains were heavily delayed and initially extremely unreliable, while the coronavirus pandemic left the company dealing with sharply reduced passenger numbers.

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

Serco said the 2014 agreement included an option for the company to present the Scottish government with new financial arrangements half way through the franchise.

It said the two sides “were not able to reach agreement on these revised terms”, which would have put the 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, saying it would “continue to work with Transport Scotland around 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.

Overnight trains in the UK can trace their history back to the middle of the 19th century, but the Caledonian Sleeper is one of only two remaining, along with a service linking London and Cornwall.

The 12-hour long “Highlander” service to Fort William is particularly popular with tourists and rail enthusiasts. The sleeper 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 it won the contract.

“The service that Serco provides today is widely recognised as being outstanding, providing hotel-standard service and accommodation that is renowned and admired around the world,” he said.

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