Connecting Scotland programme: full business case

6 Financial Case

6.1 Introduction

The purpose of the financial dimension of the business case is to demonstrate the affordability and funding of the preferred option, including the support of stakeholders and clients, as required. The challenge is to identify and resolve any potential funding gaps during the lifespan of the scheme.

The Financial Case focuses on the affordability of the Connecting Scotland programme, and the respective funding arrangements and implications. It presents the financial profile and the impact of the solution on budgets.

6.2 Appraising the Financial Case

The Financial Case has been developed in partnership with the Digital Directorate Finance Business Partner, who provides advice on behalf of the SG Chief Financial Officer. It follows guidelines from the Green Book in terms of the financial reports presented.

As a result of the work undertaken the financial case relies principally on the following statements:

• A cost statement, which presents capital and resource costs over a five-year period, in nominal values, including VAT where applicable.
• A benefit statement which surfaces, for clarity, cashable vs. non cashable benefits
• Cash expected value, surfacing the difference between budgetary requirements and cashable benefits, both in nominal terms and adjusted for inflation.
• A funding statement, where existing funding arrangements are summarised per funding organisation, and the associated funding gap, surfaced in an affordability statement. A Cost Benefit Analysis that sets out the ratio of benefit per amount spent for each of the connectivity or procurement options set out in the Socio-Economic case, where figures are available.

In developing this business case, we have been mindful of the fiscal context within which the programme is operating. The overall aim is to recommend an option which balances questions of affordability, whilst still maximising the reach and benefits offered by the programme.

The options are based around the programme goals outlined int the strategic case which are recapped here:

1. Bringing more people online through accessibility of devices, connectivity, skills and motivation.

2. Prioritising those with urgent needs and aligning the programme with government priorities such as tackling child poverty, education, employment and health and social care as well exploring potential opportunities for policy alignment.

3. Ensuring getting online is affordable by increasing opportunity in terms of low-cost connectivity and devices that can be accessed by more people.

4. Removing barriers for organisations and charities who deliver digital inclusion services and bringing them under one alliance where resources, expertise and knowledge is collectively shared to build the digital capacity of our nation.

5. Ensuring programme is affordable and sustainable by exploring, implementing and promoting sustainable options for digital inclusion.

Goal 4 above relates to the system and capacity building work which is included in options 2 through 5. This work will foster a sustainable digital inclusion ecosystem across Scotland which over time will lessen and eventually remove the need for direct intervention programmes such as Connecting Scotland.

6.2.1 The Cost Statement

The table below surfaces the revenue and capital costs associated with the preferred models. The statement includes VAT and inflation as far as possible. Cash input is required to fund:

• Programme Management & Oversight: The Scottish Government programme team required through each year of the programme. These costs have been calculated based on the average staff costs applicable in financial year 2021/22, uprated to allow for the pay award applied in November 2022, together with an allowance for pay progression. The total cost of the team is calculated at £765k per annum, comprising a headcount of 12 (10.5 FTE)
• Undertaking systems and capacity building activities: Including joining up relevant areas of government; forging pathways between government, stakeholders and clients; and providing an advisory/co-ordinating role across digital inclusion activities, including £308,000 worth of grants for partners to continue and enhance development of the Digital Participation Charter and support development of new initiatives (such as the Digital Inclusion Alliance)

This makes the basic cost of option 2 just over £1 million for the year, which allows for flexibility in the number and extent of partnership programmes it can support. The minimum is set at a level that would support a basic test of the 1-to-many models proposed. Funding above that level would support extension of partnerships to cover more of the identified priority areas (e.g., health) and could include a mix of partnerships and direct support for those in urgent need.

6.2.2 Cost of undertaking systems and capacity building activities table

The table below shows staff costs and costs for systems building activities across the 5 suggested options. Also shown is the ambition for the number of people who would be supported for each option. Subsequent tables indicate the cost of delivering these options using one-to-one and one-to-many approaches.

Option	1 - Closure of Connecting Scotland Programme	2 - Systems and capacity building activities plus partnership programmes	3 - Urgent needs support	4 - Delivering digital inclusion to 300,000 over an extended timescale	5 - 3-year delivery programme to reach 54,000 people
Programme years	27 months	27 months	27 months	5 years	3 years
Supported per year	0	2000 to 8000	20000	60000	18000
Total supported	0	4000 to 16000	40000	300000	54000
Staff costs	1720948	1720948	1720948	3824330	2294598
Total systems and capacity building cost across programme	0	342,409	342,409	760,910	456,546
Total of staff and systems building across the programme	1,720,948	2,063,358	2,063,358	4,585,240	2,751,144

The table below detail the costs associated with Programme Delivery based on one-to-one support model where recipients are gifted a device and 1 year of individual connectivity. One-to-many support models are also shown. These are models where a more diverse range of support is offered, including the promotion of social tariffs, device repair, and where those being supported with devices and data have those allocations are shared between recipients. This could be in the form of a device library, or via a pool of machines managed on behalf of clients by a support organisation in a partnership programme. The recommendation in the FBC is to take advantage of one-to-many solutions to provide greater value for money and reach more people with equivalent levels of funding.

The main risks of the one-to-many approaches relate to adopting untried service options, which means that our estimates of how many people will be supported will be more uncertain than for one-to-one models. People will be supported in diverse ways, for example, one may be helped with the repair of an existing device, another loaned a device for as long as they need it, a third may take advantage of hub-based connectivity in a community centre.

In practice, there does not have to be a firm distinction between these two approaches, and it may be desirable to offer a small amount of one-to-one support within a one-to-many framework for those most seriously in need. These figures include resource and technology related procurement of devices, connectivity, support etc, and requirements of SCVO or any other partner organisations:

• this includes £44 per person supported added to the costings for overall digital support costs according to the new Digital Champion models (this represents 4 hours of support per person costed at the living wage)
• £100 additional digital support costs for 10% of recipients to meet accessibility needs.
• £41 per device for the managed device service that provides the capability to run one-to-many solutions such as device libraries that make these services easier for partners to manage.
• as outlined above, option 2 can flexibly accommodate various levels of funding depending on the scope desired, government priorities and available funding. It is the range of appropriate funding that is shown for this option.

The estimates presented are based on assumptions made about how sharing models will work in practice. The number of people supported will vary depending on the types of models implemented and the degree of sharing that occurs.

While being more cost effective than one to one model where individuals are gifted devices and connectivity, for one-to-many models it is much harder to predict in advance how many people will eventually supported and harder to measure the support outcomes. Because forecasts of the reach of one-to-many models rely on estimates then there is potential for ‘optimism biases in these projections.

Option	1 Closure of Connecting Scotland Programme	2 Systems and capacity building activities plus partnership programmes	3 Urgent needs support	4 Delivering digital inclusion to 300,000 over an extended timescale	5 3-year delivery programme to reach 54,000 people
Total staff and systems and capacity building cost across programme	1720948 (staff cost only)	2,063,358	2,063,358	4,585,240	2,751,144
Cost of 1:1 model of support (connectivity limited to 1 year per person supported)	N/A	From 1,940,474 to 7,761,898	19,404,747	129,364,980	23,285,69
Cost of one-to-many model of support	N/A	From 360,872 to 977,552	2,210,912	18,634,379	5,424,947
Total	1720948	From 4,003,832 to 9,825,256	21,468,105	133,950,22	26,036,840

Combined totals table

Option	1 Closure of Connecting Scotland Programme	2 Systems and capacity building activities plus partnership programmes	3 Urgent needs support	4 Delivering digital inclusion to 300,000 over an extended timescale	5 3-year delivery programme to reach 54,000 people
Total systems and capacity building cost across programme	1720948 (staff cost only)	2,063,358	2,063,358	4,585,240	2,751,144
Total (Systems and capacity building plus 1:1)	N/A	From 4,003,832 to 9,825,256	21,468,105	133,950,22	26,036,840
Total (Systems and capacity building plus (1: many)	N/A	From 2,424,230 to 3,040,910	4,274,270	18,634,379	5,424,947

Undertaking the systems and capacity building activities is key to laying a successful foundation for future work, and it is this that funding is required for. The cost of the staff resources is noted below and are a proportion of the budget allocation. Therefore, should the total allocation not be possible, then provided staff are funded, as much as possible of the systems and capacity building activities will still be undertaken (with appropriate prioritisation and review).

6.2.3 Benefit statement

A significant outcome for the programme is how, during a cost-of-living crisis, an investment in digital inclusion would have returns for the people of Scotland to enable them to establish a secure financial foundation. The following information is indicative of the magnitude of potential returns on investment to the Scottish economy, and more importantly, into the pockets of Scottish Citizens.

Outcome	Saving / Benefit	Potential	Source
Moving to a social tariff or a more affordable tariff	£144 per Household per year	We estimate that there are around 340,000 recipients of Universal Credit in Scotland who could benefit from a social broadband tariff, which could deliver upwards of £40M savings to people of Scotland.	Ofcom (2022) Universal Credit uptake figures from SG
Better pay by gaining a higher level of digital skills	£422 per year pay improvement estimated for people in a manual profession	10% of people lack the most basic digital skills. If 1/4 were upskilled and benefitted from a high paid job, this would deliver £56 Million in additional income to the people of Scotland.	Lloyd’s consumer index (2022) National register of Scotland figures 2021 for Scottish population
Savings associated with online banking for those with the highest level of digital skills compared to the lowest	£659 saved per person per year	10% of people lack the most basic digital skills. If 1/4 were upskilled and benefitted from a using online banking, this would deliver £87 Million in savings to the people of Scotland.	Lloyds consumer index (2022) National register of Scotland figures 2021 for Scottish population
Savings associated with being able to shop online	£258.31 per person per year	10% of people lack the most basic digital skills. If 1/4 were upskilled and benefitted from online shopping, then this would deliver £34.3M savings to the people of Scotland.	Lloyds consumer index (2022) National register of Scotland figures 2021 for Scottish population

An important return for the programme would be a reduction in data and device poverty across Scotland which would unlock a range of benefits to society, the economy and individuals outlined in the Strategic Case in this FBC. This relates to non-financial benefits. These include improved employment and educational opportunities, improved wellbeing for citizens and significant reduction in transaction costs for governments services.

Different segments of the digitally excluded population will benefit in differing ways depending on their life situation and needs, making exact benefits tricky to calculate. However, taking the digitally excluded population as an index for these benefits not being realised, the scope the programme has for arresting and reducing digital exclusion is indicated by the table below.

Levels of digital poverty that the programme can target			Source
Number of Scottish adults affected by device poverty (unable to afford a suitable device) (Est.)	31000	Not having a suitable device hinders being able to attend a college course, apply for jobs, complete and submit homework. Connecting Scotland can get people the right device and reduce this level of inequality.	Calculated from Ofcom figures (2021)
The number of 18- to 25-year-olds who potentially don't have access to a laptop or desktop in Scotland (Est.)	84,456		Nominet research (2021)
Number of Scottish adults who do not have an internet connection at home (Est.)	266,344	Lacking internet connections at home hinder people from achieving the myriad of benefits available those online, which include improved finances and wellbeing. Connecting Scotland can get people online and reduce this level of inequality	Calculated from Ofcom figures (2021)
Percentage of Internet users who use a smartphone to go online	Risen from 10% in 2020 to 21% in 2022	Device poverty has risen for some segments of the population. The cost-of-living crises threatens to worsen digital inequality for the less well off. Connecting Scotland can help halt or reverse these trends	Ofcom figures (2020, 2022)
Number of Scottish adults who are considering giving up the internet to pay for other bills (Est.)	177,563		Lloyds digital consumer survey index (2022)

There are cash releasing benefits line is the potential increase in taxation attributable to those who transfer from being digitally excluded to included becoming employed, or those in employment maximising their income. The benefit does not release funds directly back to the Programme, or the Digital Directorate. Furthermore, the benefit is not a guaranteed saving – as, for example, the decommissioning of an obsolete computer system may be.

There may be further cash releasing benefits realised across the public sector as the cost of undertaking digital transactions with citizens is significantly less than face-to-face or by telephone. The non-cash releasing benefits are skewed heavily by benefits to the individual because of being digitally included, such as time savings (e.g., being able to avoid travelling to and queuing at banks) and transaction savings (e.g., being able to make savings online using price comparison websites, utility switching, and generally better deals being available).

That said, the CEBR in 2022 estimate a £9.48 return on every £1 invested in helping people to build their basic digital skills.

Cost-Benefit Analysis

The following table compares costs with potential benefits for one year. Benefits have been calculated using monetary values for savings or increases in salary for clients who are removed from digital exclusion, as set out in the section above. These figures were worked out using data from the Lloyds Consumer Digital Index (2022) and National Register of Scotland figures (2021) for the Scottish population. For existing clients, figures are extrapolated from the most recent user research (from Phase 2).

• digital skills could bring £422/year estimated pay improvement for people in a manual profession.
• access to online banking could lead to savings of £659/person/year.
• access to online shopping could lead to savings of £258.31/person/year.
• there are 340,000 UC claimants in Scotland who could save £144/household/year from going onto social tariffs.
• 28.7% of existing clients had plans in place for free connectivity after their support ended, so the figures below calculate potential savings for the remaining 71.3%

The following assumptions are used in this analysis:

• Digital Champion support to clients will provide sufficient levels of skills for clients to improve their salaries in line with the estimates above.
• Access to the internet will be used to its full potential in terms of making banking and shopping savings.
• Existing clients will go back to the situation they were in pre-internet access as soon as support ends unless they are able to obtain internet access from another source.

The numbers of clients supported is based on the amount of underspend identified within the programme in the financial year 2022-23. Although this figure may vary, the figure for the cost/benefit ratio will apply regardless of numbers.

Option	Number of clients supported	Costs	Benefits	Cost/benefit ratio
Support and training only	6000 (DC)	£267,900	6000 x £422 = £2,532,000	9.45
One-to-one support	6,000 (devices & connectivity & DC)	£2,996,700	6000 x (£422 + £659 + £253.31) = £8,005,860	2.67
Hub connectivity	50,000/year (device access & connectivity)	£2,600,000/year	50,000 x (£659 + £253.31) = £45,615,500	17.54
Device libraries	2,000 people year (device access & connectivity)	£21,560/year	2,000 x (£659 + £253.31) = £1,824,620	84.63
Marketing/comms	TBC depending on budget and target audience	TBC	Up to £40 million (340,000 UC claimants saving £144/ household/ year)	TBC

Digital Champion support on its own could make a significant difference to people if they can access the internet through other means, but this option is restricted by the number of available staff to undertake duties, rather than just budget. One-to-many models such as hub connectivity and device libraries are the most cost-effective methods, but Connecting Scotland does not currently have the ability to deploy support through these methods. Developing capacity and staff to implement and verify the effectiveness of these types of support should be a priority for the next phase of Connecting Scotland.

The prices quoted are for new equipment – although Connecting Scotland have negotiated favourable rates, costs would reduce significantly if refurbished kit were issued.

6.2.4 Funding requirement

Given the ‘indirect’ nature on the attributable benefits, it will be necessary for Scottish Government to fund the full capital and revenue cost amount as indicated in the Cost table above, dependent on the model chosen.

6.2.5 How could the initiative be funded?

The initiative will need to be funded fully through ‘new’ capital and revenue funding for Connecting Scotland remains a part of Scottish Government. In some discounted models, the possibility of creating a separate entity was explored. These were discounted due to the dual running costs of setting up an entity, plus ongoing support. Further such an entity would be competing for the limited funds in this area against other key partners if it was not funded through other sources such as ESG funding. There were no guarantees that ESG funding would be forthcoming.

All models have assumed that no changes would be made to the existing headcount. The number of staff required to deliver models one, two and three has been identified as follows.

Management – (To run and direct systems and capacity building activities* Programme Director (C2))

PMO workstream

• Programme Manager (C1)
• Project Delivery Manager (B2) – incorporating elements of event organisation.
• Admin (A4) – incorporating elements of comms development.

Strategy workstream (To engage both across government and externally)

• Senior Policy Lead (C1)
• Commercial Lead (C1) 0.5 WTE

Research and administration team

User research team (Evaluating data and research conducted. Identifying benefits. Surveying landscape and key players yearly. Conducting relevant surveys and research as required.

• Lead User Researcher (C1)
• Senior User Researcher (B3)
• Social Researcher (B2)

Service design team (Mapping and planning processes – developing of service delivery options and experiences. Developing and facilitating workshops, etc).

• Senior Service Designer (B3)
• Data Analyst (B2) 0.5 – critical for the ongoing evaluation of the programme.

Comms workstream

• Comms Manager (B2) this role will be subsumed to within policy as it is a critical component to enable effective partnerships and joint outcomes.

Estimated staffing costs

Role	FTE	Grade	DDAT (Digital, Data and Technology)	Starting Wage	Median Wage
Programme Director	1	C2		68540.00	98111.00
Programme Manager	1	C1		52355.00	79219.00
Senior Policy Lead	1	C1		52355.00	79219.00
Lead User Researcher	1	C1	5000	52355.00	79219.00
Senior User Researcher	1	B3	5000	41642.00	60221.00
Senior Service Designer	1	B3	5000	41642.00	60221.00
Comms Manager	1	B2		33120.00	46047.00
Project Delivery Manager	1	B2		33120.00	46047.00
Admin	1	A4		25713.00	33335.00
Commercial Lead	0.5	C1		26177.00	39609.00
Data Analyst	0.5	B2	2500	16560.00	23023.50
Social Researcher	0.5	B2		16560.00	23023.50
DDAT Total			17500
TOTALS				477639.00	684795.00

Requirements to realise savings

To realise the savings identified, it is critical that the Connecting Scotland programme continues to reduce digital exclusion and provide a mechanism for people to be digitally active. The systems and capacity building activities identified support this aim but would not have the same impact without connections being provided. It is recognised that this is a risk/impact/cost balance. At this current time, cost considerations have been weighted significantly. Importantly, other than option 1, closure of the programme, all models have the benefit of being able to scale up to the next level as required. This would be managed within existing headcount as far as possible.

A further FBC may be required before the end of this part of the programme in 2025 to determine the future focus of Connecting Scotland at that time.

6.3 Conclusion

Across most of the models exists a core priority – the use of Connecting Scotland to establish stronger connections and agreed objectives between related organisations and working together more effectively. The activities driving this priority are highlighted throughout the document as systems and capacity building activities.

Systems and capacity building activities are an underlying principle and foundational action of Connecting Scotland options. This work would be undertaken by the current Connecting Scotland SG resource. The costs of this staff resource are outlined in this section. Although the benefits are hard to quantify, with several indirect benefits that will not be apparent for many years, the research presented in the Strategic and Socio-economic cases shows that the cost of doing nothing is too great and will have negative consequences for some of the most disadvantaged groups in society.

Digital inclusion is an important part of Scottish Government policy. This will require multiple organisations, charities, partnerships and enterprises working in tandem to ensure that no one who wants to be online and have reliable digital access and skills is ever left behind again.

Based on the financial information set out above, and with due regard to risk and impact, the model recommended for approval is model 2. Support through this model should be offered using a mixture of one-to-one and one-to-many models. The Cost-Benefit Analysis shows that one-to-many solutions such as digital hubs and device libraries can support a far greater number of clients with less cost, but the programme must ensure that a range of solutions is available to meet the needs of a diverse range of people.