As a previous poster said, a major reason for Tesco selling the Hudl2 at the price they did was to entice customers into signing up for trials of their subscription services, and then hopefully (from their point of view) be happy to pay every month afterwards to keep them.
From Tesco's point of view, investment in a Hudl3 would be a difficult sell, especially as it would need to outperform the Hudl2 in most ways and not be any more expensive than it.
The only real downsides of the Hudl2 is it is rather heavy, and the battery life is not too great. Some people will say the cameras aren't too good either, but anyone who uses a tablet to take photos deserves to be shot; all a tablet needs to have camera-wise is something front-facing for video-chats. The weight and battery life are only an issue if you carry it around a lot, and with phablets being increasingly popular, tablets are probably being mainly used as just an "extra screen" at home.
I suspect the Lollipop 5.1 update for the Hudl2 is confirmation that there is no Hudl3 planned anytime soon. Why release a software update which makes the older model more attractive, if you're planning to release a newer better and more expensive device soon? They could easily have kept the Hudl2 on 4.4.2, and one of the selling points of the new Hudl3 would be the updated software it comes with.
For its price, the Hudl2 doesn't really have anything to fault it as a stay-at-home device. The 1920x1200 screen is ample for a mid-range let alone a budget 8" device. The CPU packs quite a punch: although not up there with the A57 and certainly nowhere near the upcoming A72 devices, it'll run pretty much everything fine that you'll use it for, and anything it struggles with is probably better suited to being used on a PC or games console. 2GB of RAM is adequate to keep multi-tasking smooth enough. It has a uSD card slot which can take at least 64GB cards (I don't have a 128GB or larger card to test with), which makes the 16GB internal storage much less of an issue, though that is still in my opinion its main limitation.
One other problem of the Hudl2 for some users is that it is not as easy to root it as would be desired. It's understandable that Tesco don't want users coming into their stores with devices that have been screwed up whilst attempting to root, but it would be nice if Tesco provided an official, relatively safe way on the understanding you void your warranty, method of rooting.