Post-school funding body landscape simplification: outline business aase

1. Executive Summary

1.1 Introduction

This project represents the first step in the ten-year programme of reform and continuous improvement of Scotland’s post-school education and skills system. It is an enabling project – necessary to strengthen the foundations from which we can build a flexible, agile and responsive post-school education, skills and research system that is vital to meet Scotland’s changing needs.

This is about building on the best of what we have today. Essential to future success will be breaking down the artificial silos between further and higher education and academic and vocational skills to ensure that Scotland has a diverse post-school education, skills and research system that delivers what people and employers need, when they need it. A system that is fair, accessible and easy to navigate.

Scotland’s education and skills system is going to have to serve people continuously throughout their lives as technology, demographics, changes to the world of work and the transition to net zero transform the way we live and work, and bring new opportunities for Scotland’s economy.

The public bodies landscape that serves and supports that system must be right for the task at hand. That means ensuring that roles and responsibilities are clear; that useful data can be captured and shared to measure performance and continuously improve; and the right culture of collaboration between government, public bodies, institutions, private and third sector providers, employers and learners is in place.

This Outline Business Case (OBC), developed in partnership with professional, Scottish Government analysts and economists and in alignment with HMT Green Book principles, provides the rationale and justification, as well as an appraisal of options for proceeding with simplification of the post-school funding body landscape in Scotland (“the Project”) as the first, enabling step in delivering that change.

Following the standard five case model approach, the scope of this OBC is to provide a case for change for the Project (Strategic Case), appraise options to deliver simplification, considering both quantifiable and unquantifiable costs and benefits (Socio-economic and Financial Cases), as well as set out initial plans and considerations for how to manage the delivery of the next phase of development in the transformation (Commercial and Management Cases).

This OBC is part of the evidence that will be used by Scottish Ministers to decide on the future shape of the post-school funding body landscape. Further detailed development work to progress implementation of Ministers’ preferred option will be required. This will be taken forward in partnership with affected public bodies. Parts of the analysis set out in this OBC will be refined and updated as more detailed implementation plans are developed.

1.2 Strategic Case

The Strategic Case sets out the strategic context and makes the case for change, demonstrating how the Project provides strategic fit, considering risks, constraints and dependencies.

1.2.1 Strategic context

The Independent Review of the Skills Delivery Landscape^[1] and the Purpose and Principles for post-school Education, Research and Skills^[2] published in 2023 identified a range of issues with the current post-school funding body landscape. These included complexity of the landscape, funding streams and funding models, as well as lack of clarity on roles and responsibilities of each funding body.

The current funding system was described in the Diversity of Provision Report^[3], published alongside the Purpose and Principles.

As part of the Independent Review of the Skills Delivery Landscape that was published in June 2023, it was recommended that:

“Scottish Ministers should identify and establish a single national funding body to have responsibility for administering and overseeing the delivery of all publicly funded post-school learning and training provision. This would bring together the responsibility for funding of apprenticeships and training currently remaining in Skills Development Scotland with the functions for dispensing funding to colleges and universities currently carried out by the Scottish Funding Council. Ministers should consider whether this new body should also include responsibilities currently undertaken by the Students Awards Agency for Scotland, which sat outside the remit of this Review.”

During the same timeframe, the Scottish Government published the Purpose and Principles in June 2023. This was developed in response to the Scottish Funding Council (SFC) Review of Coherent Provision and Sustainability, in which it was recommended that the Scottish Government "sets out more clearly its overall strategic intent for tertiary education and research.”

The Scottish Government accepted the SFC’s recommendation but broadened the scope to include skills, work based learning and upskilling and reskilling – recognising that any distinction between these systems was artificial. That led to the development of the Purpose and Principles, for the post-school education, research and skills landscape; recognising this was a system broader than tertiary education and research.

Accepting the premise of James Withers’ recommendation, and the Purpose and Principles Initial Priorities^[4], Scottish Ministers committed to:

“…investigate the options to deliver a single funding body, including tuition and living cost support, paying regard to issues such as the status and scope of the body’s responsibilities”.

The final Purpose and Principles, as published in June 2023, serves to provide a constant in times of change and a clear set of ambitions to work towards as Scottish Government re-imagines and reforms the system. They act as a framework that sets the policy direction and shapes delivery priorities.

The aim of the Project, to simplify the post-school funding body landscape in Scotland, presents an opportunity to make progress with an important, enabling workstream within the overarching reform and continuous improvement of Scotland’s Education and Skills system.

The Programme for Government 2024-25: Serving Scotland committed to bringing forward a Bill to:

“Reform the education and skills funding system so it is easier to navigate and responsive to learners and skills priorities – breaking down silos and reducing bureaucracy”

The options were subject to consideration as part of this Project and were also the subject of a public consultation between June and September 2024. The consultation analysis alongside this OBC will form the evidence base for Ministerial decisions on the preferred way forward.

In addition to delivering against the specific Project objectives, the changes stemming from the Project will contribute to the National Outcomes in the National Performance Framework in the following ways:

• Education: We are well educated, skilled and able to contribute to society
  • Enables targeted and equitable distribution of funding that places children, young people and adult learners at the core.
  • Less investment goes on administering the system, duplication is reduced, the quality of data is enhanced which enables more informed decision making and supports a national approach to skills planning.
• Economy: We have a globally competitive, entrepreneurial, inclusive and sustainable economy
  • Improved quality and availability of data supporting national and regional skills planning.
  • More flexible models of funding are enabled within a streamlined system.
  • Clear responsibility for funding innovation, research and knowledge exchange within institutions, underpinning Scotland’s globally competitive economy.
• Fair Work and Business: We have thriving and innovative businesses, with quality jobs and fair work for everyone
  • The way that funding flows through the system is clear; there is confidence across Scotland’s economy that the system delivers and clarity on the return on investment.
• International: We are open, connected and make a positive contribution internationally
  • Maintaining Scotland’s internationally renowned research base.
• Poverty: We tackle poverty by sharing opportunities, wealth and power more equally
  • Simplifying the funding body landscape, clarifying roles and responsibilities and removing duplication will enable more innovative and person-centred approaches to student support to be developed and delivered. This will enable learners, no matter their background, to access support to take up learning opportunities enhancing their career and life prospects.

Over time, the changes to the post-school funding landscape, along with other public services, will make a direct and significant contribution to several of the National Outcomes and to Scotland’s National Strategy for Economic Transformation (NSET).

1.2.2 Case for Change

The strategic case establishes a case for change by, investigating the current funding system and gathering evidence of challenges in the funding landscape to develop spending objectives, as well as to identify the scope and business needs for the Project. This has been informed by evidence gathering of current system challenges and reviewing those against the outcomes contained in the Purpose and Principles logic models.

As part of the evidence gathering exercise for the Purpose and Principles of post-school reform, several challenges and opportunities were identified in relation to the funding landscape. These are summarised in the problem statement below.

Problem Statement – The current system lacks a coherent vision, shared values and a common purpose. It features complexity and confusion around overlapping roles, functions and funding models between and across government and agencies, alongside a lack of collaboration, trust and flexibility that would allow the system to deliver better outcomes. There is a lack of a comparable system-wide evidence base and regulatory framework which can describe the current successes and challenges, the desired outcomes and metrics and allow for accountability and assurance.

This problem statement supported the development a Project level logic model as well as spending objectives, which are set out below:

1. To simplify operational responsibility across the post-school funding body landscape – ensuring fairness, transparency and maximising value for public investment.

2. To reduce costs and increase efficiencies in the operation of the system – enabling more of the investment made by the Scottish Government to flow directly to learners and employers by reducing the costs of administering the system.

3. To improve availability and quality of data collection to inform investment decisions, skills planning priorities and careers advice - ensuring the system is more responsive to the needs of learners, employers, the economy and society.

4. To enable targeted and equitable distribution of funding to support the learner - ensuring that people, at every stage in life, have the opportunity and means to develop the skills, knowledge, values and attributes to fulfil their potential and to make a meaningful contribution to society.

This clarification of the problem and objectives for the Project supported the identification of a number of business needs that would have to be met in order for the Project to deliver the above objectives as well as the short, medium and long-term outcomes set out in the logic model.

These are:

1. The need for a more coherent vision, shared values and common purpose to avoid confusion for learners and employers.

2. The need to remove overlapping roles, functions and responsibilities, minimising duplication and maximising public value.

3. The need to address the lack of comparable system-wide data and evidence leading to difficulty in understanding the social and economic value of investment and making it challenging to plan for the future needs of Scotland’s economy and society.

4. The need to address the lack of system-wide measures of success, supporting enhanced accountability and assurance.

A scope was then developed for the Project to set out minimum requirements for addressing these business needs. This included all areas of overlap in funding responsibility in the existing system within Scottish Ministers span of control and set out that responsibility for all provision funding (Further and Higher Education, Apprenticeships and all other national training programmes) should be in one body and responsibility for all student support (HE and FE) in one body.

Funding for research was considered out of scope as the SFC is the sole body with responsibility in this area and as a result of the additional complexity of the dual support system for research across the UK.

1.2.3 Benefits

When the implementation and transition phase of the Project is complete, (from target implementation date autumn 2026/27), the following benefits should begin to be realised:

• A simplified post-school funding body landscape – resulting in fewer bodies with overlapping roles and responsibilities across the system.
• A post-school funding system that is more coherent and focused on the needs of learners and employers.
• A post-school funding system that is supported by modern, efficient, secure systems.
• Established effective relationships with stakeholders across the system to achieve the desired outcomes.

There is also an expectation that the Project will deliver efficiencies in future years that go some way to offsetting the cost of transition and the increased cost of delivery of options in future years. As detailed design work to deliver a preferred option has not yet taken place it has not been possible to quantify these benefits at this time.

Similarly, further efficiencies and benefits are likely to result through changes to delivery from other projects that are part of the Reform programme, for example, apprenticeship policy and the implementation of a new national approach to skills planning. As these projects are outwith scope of this Project and at a different stage in their development, the likely benefits from these changes cannot be quantified at this time.

1.2.4 Strategic Risks, Constraints and Dependencies

The main risks associated with delivering the Project are:

• Ensuring that there is a positive and collaborative culture in place to develop and successfully deliver the new structures that will be required in a simplified landscape.
• Ensuring effective communication, engagement and partnership working with public bodies leadership, staff, trade unions and stakeholders.
• The challenging financial climate and the need to build a persuasive, well evidenced case for change and plan for implementation to secure the budget to meet transformation costs.
• The need to ensure that appropriate levels of workforce and resources are in place to lead and manage development and delivery of implementation plans before beginning to implement change.

The constraints identified as part of the Project relate to:

• Availability of funding to deliver this change.
• Resourcing pressures to take this work forward, given limitations on recruitment.
• Willingness of public sector partners to fully participate in development and delivery of a reformed funding body landscape.

In addition to these factors, there were some pre-set parameters that were also Project constraints. The Project had to:

• Draw on existing legal frameworks where possible.
• Be compatible with the Ministerial control framework in place on creation of new public bodies which includes a presumption against the establishment of new bodies.
• Enable the ONS classification of universities and the principle of academic independence to be preserved.

The main dependencies linked to the Project are:

• Connection to Education Reform to ensure the school and post-school public bodies landscape are aligned.
• Capacity and capability across the Scottish Government and public bodies to deliver change, and the need to align existing systems.
• Availability and quality of data provided by public bodies in development of the OBC analysis.

These risks, constraints and dependencies will be mitigated and managed through:

• Establishing the right, collaborative governance and delivery structures, developing these in partnership with public bodies once Ministers have made a decision on the preferred way forward.
• Maintaining and enhancing the portfolio approach to management of reform across the education and skills portfolio. This will include sharing lessons learned, resources and exploring further opportunities for alignment.
• Ensuring regular, relevant communications and engagement with staff in public bodies affected by the change, their recognised trade unions and wider stakeholders.
• Continuing to develop the evidence base and analysis as plans progress from development to detailed design and delivery - providing increased certainty around likely costs and benefits.
• Making dedicated resource available to support transition in order to minimise disruption to business as usual activity which must continue to deliver for learners and employers across Scotland whilst reform is underway.

There are a number of key dependencies between this OBC Project and other Scottish Government and wider stakeholder activities. These have been considered in the development of the OBC and include internal and external dependencies as well as dependencies between the Public Bodies within the post-school funding body landscape and that of the education institutions within the post-school education system.

1.3 Socio-Economic Case

The Socio-Economic case identifies and provides an appraisal of the options for simplifying the post-school funding body landscape, following HM Treasury Green Book principles.

1.3.1 Long-list appraisal

Eight long-listed options with sub-options for different delivery methods (20 options in total) were developed as a result of several workshops and engagement with policy areas. These looked at a variety of ways to address the business needs and the objectives within the scope identified in the Strategic Case. The long-list included options that solely move funding functions for provision – i.e. funding for National Training Programmes and/or funding for college and university provision – from one organisation to another; options that solely move student support – i.e. higher education and/or further education student support – funding functions from one organisation to another; options that move both provision and student support funding functions from one organisation to another; and options that looked at creating an entirely new funding body for provision and student support. More detail on these options can be found in section 3.2 of the socio-economic case.

As per the HMT Green Book Guidance,^[5] Scottish Government policy officials and analysts collectively assessed all long-listed options against the spending objectives and critical success factors. Each option was rated as “red”, “amber”, or “green”, expressing the delivery structure not satisfying, partially satisfying, or fully satisfying the appropriate appraisal criteria. During the assessment further consideration of constraints, dependencies, unmonetised and unquantifiable factors, as well as unintended consequences were taken into account, based on currently available evidence.

As a result of the assessment, it was agreed that only options that brought responsibility for student support together into one body and responsibility for all provision funding together into one body would sufficiently meet the core scope of the project and deliver on the objectives as well as at least partially meeting all of the critical success factors set out in the strategic case.

Whether all these functions should be under one single body was less clear, particularly from a value for money perspective, and it was determined that this would require further investigation.

Two options were assessed as best meeting the criteria while also satisfying the constraints set out for the Project. These, alongside Business as Usual (as shown below), were taken forward for more detailed appraisal.

• Option 1: Business as Usual.
• Option 2: Consolidate all provision funding within one public body (SFC) and all student support funding within one public body (SAAS).
• Option 3: Consolidate all provision funding and all student support funding within one public body (SFC).

1.3.2 Short-list appraisal methodology

As highlighted above, this Project is ultimately about structural change, where the benefits relate to creating conditions to improve the system, and therefore are not easily quantifiable or monetisable. This means that traditional Green Book cost-benefit analysis (CBA) is not suitable for appraisal.

The alternative approach suggested by the Green Book – cost-effectiveness analysis (CEA) – requires an effectiveness measure, which is not readily available for a project that has multiple outcomes and objectives. To resolve this, the Socio-Economic case applied a Multi-Criteria Decision Analysis (MCDA) approach in addition to analysing the costs, allowing for an effectiveness measure to be created from the MCDA results. The use of MCDA also provides Ministers with additional information on how the outcomes vary by options and incorporates stakeholder views.

An HMT Green Book approved method, MCDA assesses the performance of options against set criteria, taking into account different viewpoints and perspectives of key stakeholders. Used widely across the public sector, it is a good addition in appraisals that do not rely predominantly on monetary valuations and facilitates wider engagement in the process.

The criteria used in the MCDA to assess the short-listed options are as follows:

Table A: MCDA criteria

Criteria set	Criteria
Simplicity and Accountability	1. Simplify and clarify responsibility for governance and assurance of all aspects of the post-school system, allowing for action to be taken when standards are not met.
Operational Efficiency	2. Improve operational efficiencies within the post-school funding landscape.
	3. Enable efficiencies within the funding recipient landscape.
Data Quality, Availability and Comparability	4. Enable best use of existing data.
	5. Enable improvement of quality, comparability and fitness for purpose of future data collection.
Equity and Agility	6. Enable more targeted, equitable and sustainable distribution of student support funding.
	7. Enable agile and responsive funding models across all forms of provision.
Implementation and Risk	8. Deliverability of options.
	9. Deliverability of outcomes.
	10. Disruption.

A workshop was held on 5 September 2024 with key stakeholders, including Scottish Government policy officials and participants from SDS, SFC, SAAS as well as Universities Scotland, Colleges Scotland and Independent Training Providers.

Participants were asked to rank options against each criterion and to provide reasons for those rankings. These rankings were then collated to determine a ranking for each criterion and each criteria set. The criteria sets were weighted equally at this stage.

1.3.3 MCDA results

The following table shows the summary results of the MCDA workshop for each option by criteria set.

Table B: Ranking of options against each criteria set (1 = best, 3 = worst)

CRITERIA		Option 1. BAU	Option 2. Two funding bodies	Option 3. One funding body
1	Simplicity and Accountability	3	1	2
2	Operational Efficiency	3	1	1
3	Data Quality, Availability and Comparability	3	2	1
4	Equity and Agility	3	2	1
5	Implementation	1	1	3
Sum of ranks		13	7	8
Overall result		3	1	2

The overall workshop feedback highlighted clear agreement that the current system (i.e. Option 1 – Business as Usual) was not sustainable and that change is needed. However, feedback was also clear on the importance of implementing the change well, following best practice and retaining required skills while ensuring minimal disruption and keeping the learner, as well as employers, at the forefront.

In terms of the option that best met the criteria, workshop feedback varied. Option 2 was seen as most likely to remove complexity and be easier and less disruptive to deliver as opposed to Option 3. However, many participants argued that Option 3 would ultimately lead to marginally greater efficiencies and would enable better data collection and comparability by concentrating responsibility for data gathering and sharing within one body as well as better equity outcomes. The primary concern about Option 3 related to SAAS functions in administering student loans and whether the loan book could transfer to a non-departmental public body (NDPB). There was also concern that this Option would lead to more complexity, given that many of the bodies involved in student loans, including HMRC, HM Treasury and the Student Loans Company are out of scope of this Project.

While the overall scores show Option 2 ranking the first, the more detailed results outlined below illustrate the close nature of the scores between Option 2 and 3. In fact, many participants said there was, at most, a marginal difference between these options in terms of benefits.

Several sensitivity tests were also carried out, including Monte Carlo analysis. These confirmed that the difference between Options 2 and 3 is marginal and that the results are highly sensitive to changes in weightings as well as the assessment method chosen, with Option 3 typically ranking higher than Option 2 when Criteria Sets 3 and 4 are given higher weight than Criteria Sets 1 and 5.

1.3.4 Cost analysis results

Annual nominal costs from the Financial Case were summed and discounted (by 3.5%) in accordance with HMT Green Book methodology and principles, to provide a Present Value of Costs (PVC) over a 9-year time horizon. These were also presented as Additional Present Value of Costs relative to BAU.

Both of the non-BAU Options (2 and 3) will incur additional costs. Option 2 has lower additional PVC, ranging from £5.2 million to £9.1 million, compared to Option 3 which has additional PVC ranging from £9.5 million to £16.1.

1.3.5 Cost-effectiveness analysis results

The MCDA and cost analysis were then combined to provide a formal cost-effectiveness analysis (CEA). This was done by dividing the total PVCs for each option by the sum of inverted MCDA Criteria Set ranks for each option to arrive at a cost-effectiveness ratio, with the option with lowest ratio being the most “cost-effective”. Here, the sum of MCDA ranks represents an “effectiveness measure”, or “outcome” that the costs are assessed against.

The results for this are set out below in Table C and show that Option 2 is most “cost-effective”, followed closely by Option 3, with Option 1 least “cost-effective”.

Table C: Cost-effectiveness analysis results

Cost-effectiveness analysis results	Option 1. BAU	Option 2. Two funding bodies	Option 3. One funding body
PVC range (low-high) (£ million)	359.7 – 395.0	364.9 – 404.1	369.2 – 411.1
Sum of ranks	7	13	12
Cost-effectiveness ratio (low-high)(£ million)	51.4 – 56.4	28.1 – 31.1	30.8 – 34.3

Sensitivity tests were also conducted to see how much the MCDA Criteria Set weightings or costs need to change for the overall result of the CEA to change. These show that the CEA results and MCDA results are broadly consistent and follow similar patterns when weightings are changed. They also show that the results are not very sensitive to costs, with the overall PVC for Option 2 having to increase by more than 80% and Option 3 PVC by more than 65% for Option 1 to become the most “cost effective”.

1.4 Commercial case

The commercial case sets out an overview of existing services and systems in place across the three public bodies and summarises the forward plan that will be developed to procure the types of goods and services likely required in the future system.

The following commodities have been identified within the case: digital infrastructure, ICT services, transfer of data, media and marketing, training and development, research, and estates. In addition to this, corporate services such as HR and finance would also be included.

Procurement for this Project is anticipated to follow the Scottish Government’s Procurement Strategy and, at the very least in the planning stages, the implementation project will be supported by the Scottish Procurement and Property Directorate. This will support the effective management of commercial risks during implementation, transition and operational phases of the reform of public bodies within the post-school funding body landscape.

Given detailed design of future target operating models has not been possible in advance of a decision being made, the commercial case does not detail what procurement will be required, but instead summarises potential future commercial and procurement considerations that will have to be taken into account.

It is important to reflect that the future procurement requirements for this Project may rest with existing public bodies, or within a reformed public body, rather than with the Scottish Government. Should this be the case, as is currently required, public bodies would be expected to take the appropriate steps in line with Scottish Government procurement processes and strategies, in particular driving forward best value and ensuring that ethical standards are embedded within the process to create sustainable, person centred, public services.

1.5 Financial Case

The Financial Case sets out the estimated costs associated with the three short-listed options and the impact of these on public finances. Costs are assessed both for the transition to and running of the post-school education and skills funding body landscape, from 2025/26 to 2033/34, assuming that any changes would be operational within 2026/27 with initial transition costs being incurred from 2025/26.

The costs are based on detailed technical submissions from all affected public bodies. Given it has not been possible to undertake detailed modelling of future target operating models for each option at this time, a number of assumptions have been applied throughout the financial case to estimate costs.

As a proxy for future “to be” structures, the basis for the cost assumptions presented have been derived by considering the “as-is” as a baseline and consolidation of these costs into new structures for each option. A number of comparable reform programmes from Scotland and across the UK were considered to provide reasonable estimate costs of change in areas such as workforce, IT services and estates costs in advance of detailed design having taken place on the basis of a preferred option. Public body annual accounts were used to determine consistent cost elements in conjunction with information provided from public bodies.

The financial case focuses on the financial costs associated with implementing each option, it is important to consider the direct financial benefits alongside this information. For the purposes of this Financial Case, an assumption has been made that no changes will be made to running of the system under Options 2 and 3.

This is because it is not possible to quantify any cost savings related to operating costs, such as through shared systems and services, at this time. While these are assessed as being likely to materialise during the implementation period of the project, either through reductions in duplication of existing corporate functions or through enhanced shared services or new systems, these will not be able to be quantified until detailed design work towards a new target operating model across all public bodies has been undertaken. Therefore, any estimates presented that relate to the operation of the system under Options 2 and 3 do not provide a complete reflection of the potential financial benefits of the future system.

1.5.1 Overall costs per Option

Table D: Overall Option costs over the 9-year appraisal period in cash terms (£ million)

	25/26	26/27	27/28	28/29	29/30	30/31	31/32	32/33	33/34
Option 1 – Business As Usual
Low	51.6	52.8	48.0	47.6	47.6	48.3	48.2	48.7	49.5
High	53.4	55.2	51.1	51.5	52.3	54.2	55.2	57.0	59.0
Option 2 – Two funding bodies
Low	52.1	55.0	48.5	48.1	48.0	48.7	48.7	49.2	49.9
High	54.4	59.4	51.9	52.2	53.1	54.9	56.0	57.7	59.7
Option 3 – One funding body
Low	52.1	56.5	49.0	48.6	48.6	49.3	49.2	49.8	50.5
High	54.4	61.9	52.8	53.1	53.9	55.8	56.8	58.6	60.6

Table E: Additional costs for Options 2 and 3 relative to Option 1 (BAU) over the 9-year appraisal period in cash terms (£ million)

	25/26	26/27	27/28	28/29	29/30	30/31	31/32	32/33	33/34
Option 2 – Two funding bodies
Low	0.5	2.2	0.5	0.5	0.5	0.5	0.5	0.5	0.5
High	1.0	4.1	0.8	0.8	0.8	0.8	0.8	0.8	0.8
Option 3 – One funding body
Low	0.5	3.7	1.0	1.0	1.0	1.0	1.0	1.0	1.0
High	1.0	6.7	1.7	1.6	1.6	1.6	1.6	1.6	1.6

1.5.2 Sensitivity tests

Given the level of uncertainty particularly in relation to staff and transition costs, three sensitivity tests were conducted to account for the potential risk of costs being higher than originally estimated. Scenario 1 assumes a 10% year-on-year increase in the “high” staff costs for those in scope to transfer from 2026/27 onwards. Scenario 2 assumes a 100% increase in the “high” transition costs over 2025/26 and 2026/27. Finally, Scenario 3 combines scenarios 1 and 2. Option 1 remains unchanged.

The following two tables show how the range of total costs relative to Option 1 set out in the above table (Table D) change in each of the three scenarios.

Table F: Total additional costs for Option 2 relative to Option 1 per sensitivity scenario in case in cash terms (£ million)

	25/26	26/27	27/28	28/29	29/30	30/31	31/32	32/33	33/34
Scenario 1
Low	0.5	2.2	0.5	0.5	0.5	0.5	0.5	0.5	0.5
High	1.0	5.1	1.8	1.7	1.6	1.7	1.7	1.7	1.7
Scenario 2
Low	0.5	2.2	0.5	0.5	0.5	0.5	0.5	0.5	0.5
High	2.1	7.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8
Scenario 3
Low	0.5	2.2	0.5	0.5	0.5	0.5	0.5	0.5	0.5
High	2.1	8.8	1.8	1.7	1.6	1.7	1.7	1.7	1.7

Table G: Total additional costs for Option 3 relative to Option 1 per sensitivity scenario in cash terms

	25/26	26/27	27/28	28/29	29/30	30/31	31/32	32/33	33/34
Scenario 1
Low	0.5	3.7	1.0	1.0	1.0	1.0	1.0	1.0	1.0
High	1.0	8.9	4.0	3.9	3.9	3.9	4.0	4.0	4.1
Scenario 2
Low	0.5	3.7	1.0	1.0	1.0	1.0	1.0	1.0	1.0
High	2.1	12.9	1.7	1.6	1.6	1.6	1.6	1.6	1.6
Scenario 3
Low	0.5	3.7	1.0	1.0	1.0	1.0	1.0	1.0	1.0
High	2.1	15.2	4.0	3.9	3.9	3.9	4.0	4.0	4.1

1.5.3 Overall affordability

While there is clarity on the budget for 2025/26, the budget for 2026/27 and beyond is not yet clear, therefore, it is not possible to say if all options are feasible and could be progressed within current budget constraints. Even though a commitment has been made to bring forward the necessary legislation to give effect to the changes considered in this Outline Business Case, the consultation on the legislation made clear that implementation would, most likely, be for a future administration to consider as part of its budget process. The outcome of the UK Government multiyear spending review will also be relevant in this context.

While it has not been possible to quantify the potential level of savings that could be released as a result of reform at this time, this work will continue to be modelled as detailed design work towards a new target operating model across all public bodies progresses. In the absence of the modelling of potential savings, Option 1 (BAU) is the lowest cost option to implement. However, given the challenging budgetary context and the need to adapt the system to become more flexible and fleet of foot, it is unlikely that a Business as Usual scenario would be affordable in the long term and therefore demonstrable efficiencies would be required in all scenarios.

1.6 Management case

The Management Case is in two parts and sets out the management and governance arrangements that have been in place during the development of the OBC and the governance and assurance arrangements that will need to be established for the further development and implementation of a preferred way forward.

In the first part of the management case, the existing governance structures for the portfolio, programme and project are outlined. Within the project governance the role of different groups is clarified, including the role of the Technical Assurance Group, which includes representatives from public bodies, and the role of the internal Scottish Government Project Board.

The second part of the management case considers governance and reporting arrangements following a decision being made by Ministers on a preferred way forward. This includes commentary on indicative timescales and principles that will guide the approach to implementation. Additional detail is provided on change management and initial thinking on benefits realisation. Once a final option for implementation is confirmed, the project governance arrangements set out here will form the starting point for development of a delivery plan, in partnership with affected public bodies, including the agreed approach to benefits management and realisation.

Monitoring and evaluation for this project will follow the same approach as the wider reform programme, using the Purpose and Principles outcomes and the bespoke project level logic model as the basis for evaluation planning. Project monitoring will follow the metrics set out in the benefits realisation plans and will be part of a wider framework of measures to track delivery across the programme as a whole.

Moving beyond the initial phase of the Project, and once a preferred option is known, there will be a requirement to revisit project and workstream structures and to co-design these with affected public bodies to ensure that the detailed knowledge and expertise required to design an effective future system can be brought to bear to deliver the aims of the Project. These working groups will form part of the implementation phase and will be important as plans are developed and tested.

1.7 Conclusion

The OBC sets out the strategic context and case for change to take forward simplification of the post-school funding body landscape. It provides a detailed financial and economic appraisal of the short-listed options to provide sufficient information to enable Ministers to make an informed choice about a preferred option to progress to further development, detailed design and implementation.

The financial appraisal focusses on setting out the additional costs of delivering either Option 2 or 3 relative to business as usual. In this phase of development, this primarily involved considering detailed technical submissions on staff, systems, operational practice and processes across the current funding body landscape. This enabled a better understanding of costs and deliverability of these options - resulting in a more detailed affordability assessment of the options, with Option 1 assumed to be cost-neutral, and with additional costs associated with Option 2 being lower than with Option 3.

It was not, however, possible to quantify the benefits that would be expected to be realised through enhanced operational efficiency from the system in the future or through wider societal benefits from a simpler and more responsive system.

The economic appraisal partially accounted for this, showing clear support for the case for change set out in the Strategic Case, with Option 1 seen as unlikely to be sustainable or affordable longer term as well as unlikely to deliver on the business needs set out in the Strategic Case. However, the analysis suggests it is less clear which of the “change” options should be taken forward.

Based on the economic appraisal, Option 2, while still representing change and introducing uncertainty and disruption to the system, is less complex, more affordable and less high risk than seeking to make the wholesale system change outlined in Option 3. The way that learners interact with the system would not be disrupted in Option 2 and this option has been assessed as being likely to deliver benefits through clarification of roles and responsibilities, elimination of duplication of functions, enhanced opportunities for shared systems and services and improvements in the availability and comparability of data.

Option 3 would likely deliver the same benefits and may also drive out marginally greater efficiency, equity outcomes and enhanced transparency and comparability of data. However, it is more costly to deliver and likely to lead to greater disruption.

Given that the analysis points to no obvious “winner”, the final decision may rest on risk appetite in relation to both tolerable levels of disruption and additional spend balanced with the level of importance placed on specific outcomes, with Cost-Effectiveness analysis showing Option 2 as the most “cost effective” by a small margin, when assuming that all outcomes are assigned equal importance.

In particular, consideration should be given to the extent and nature of the potential disruption associated with Option 3, and whether it could lead to issues with student loan provision that could negatively impact students. Similarly, it is useful to consider whether the potential for marginally enhanced delivery of some outcomes from Option 3 should be given more weight, and therefore be sufficient to outweigh the additional associated costs and the complexity of implementing such a large-scale change.

Significant further work is required to develop the detailed design and implementation plan for Minister’s preferred option and to ensure that all opportunities to drive efficiency, best value and better outcomes for learners and employers are pursued.

The next phase of work to develop a preferred option in detail and to design future target operating models for a reformed system will require the expertise, capacity and capability that exists within SAAS, SDS and SFC to be brought to bear.

The OBC begins to set out some of the delivery capabilities, management strategies and Project and Programme governance that will require to be put in place for the next phase of development to deliver transformation to a high standard.