UPDATE 3 — The Scottish Government’s Transport Secretary Michael Matheson told MSPs on Wednesday that Abellio’s contract to run ScotRail services “is expected to come to an end in March 2022.”

The ScotRail franchise is currently operated by Abellio, which is based in Utrecht and is part of the Dutch state-owned Nederlandse Spoorwegen group.

Under the terms of the current contract, which started in 2015, the Scottish Government and Abellio were required to revisit cost and revenue assumptions.

Matheson said following “extensive and rigorous analysis” a decision was taken not to continue the contract for the full 10 years.

Matheson said: “I can confirm that I have, today, issued a notice to inform Abellio ScotRail of the decision.

“Therefore the current franchise agreement is expected to come to an end in March 2022.”

Abellio UK managing director Dominic Booth said: “We are hugely disappointed by this decision and believe it’s the wrong choice for Scotland’s Railway and its customers.

“Abellio has invested more than £475 million in new and upgraded trains, added 23 per cent 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. 

“We will remain fully committed to running a safe and reliable service until the end of the contract in 2022.

“While this decision creates unnecessary uncertainty for more than 5,200 staff and our customers, we will maintain our focus on delivering vital projects for Scotland’s Railway and seeing through the delivery of significant customer benefits until 2022.”

CBI Scotland tweeted: “Abellio UK has made record investment in Scotland’s railway. Always room to do more but ending ScotRail contract early creates uncertainty over future of our railway at a key time in the journey to a low-carbon future & sends wrong signal about Scotland as a place to invest.”

Abellio added: “Abellio will work closely with whoever the Scottish Government chooses to deliver rail services from 2023 to 2025.

“We also note that it will now have to begin a procurement process under the old DfT franchising process.

“The next five years is a vital period in the life of Scotland’s Railway.

“Transport Scotland will be aware that there are many projects and investments such as preparing for a fully decarbonised railway by 2035 that will be delayed or put at risk with a change in control of the ScotRail franchise.”

Matheson said Abellio has had “successes and challenges” over the first five years of its franchise

“I believe that the decision I have advised the Parliament of today, in respect of the ScotRail franchise, is the right one for passengers, communities, the economy and taxpayers,” Matheson said.

“It is of course necessary to plan for the future provision of ScotRail services and I can confirm that work is already under way to examine the options open to the Scottish ministers after the current contract comes to an end.”

Transport Scotland said in a statement: “Transport Secretary Michael Matheson has today confirmed that the Abellio ScotRail contract will come to an end early.

“The current franchise agreement requires Scottish Ministers and Abellio to revisit the level of government subsidy provided for the remaining 5 years of the contract and to determine whether additional subsidy should be paid.

“This is a process known as rebasing.

“Following considerable analysis and careful consideration of the information provided by Abellio ScotRail, Ministers have decided that the significant increase in Government subsidy proposed would not secure delivery of commensurate benefits to passengers, communities and the economy.

“Ministers have therefore served a No Rebasing Notice on Abellio ScotRail.

“As a result of this decision, existing Government subsidy levels remain in place and the franchise will come to an end early, currently expected to be March 2022.”

Matheson added: “Our rail network is of significant social, economic and environmental value to the people of Scotland, and Ministers must ensure that the services we secure are high performing, financially sustainable and offer value for money.

“We currently provide around two thirds of the running costs for our railway and it is essential that this is sustainable going forward.

“Our record investment in rail is already delivering more seats, more trains and more stations.

“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.

“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.”