Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, November 24, 2016

Official Report 599KB pdf

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Section 23 Report

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“Superfast broadband for Scotland: A progress update”

Item 6 is our evidence session on “Superfast broadband for Scotland: A progress update”. I welcome back Fraser McKinlay and his colleagues from Audit Scotland. I invite Fraser to make an opening statement.

Thank you, convener. I will be very brief on this one; obviously, you have the report. This is a follow-up—a progress update—on the report that the Auditor General did on broadband roll-out back in February 2015.

We have looked at three main areas. The first is the progress that has been made in rolling out superfast broadband across the two contracts that are managed by the Scottish Government and Highlands and Islands Enterprise. The second area that we touch on is the progress that the Government is making more widely on its ambition to have a world-class digital infrastructure and the response to the recommendations that we made back in 2015. Generally speaking, I think that the Government and HIE have responded well to those recommendations. We make some further recommendations and the committee has had a response from the relevant accountable officer in the Government about those.

We are planning to come back to this again, probably in 2018, to see what the final position is on the current contracts and, equally importantly, to do another update on the Government’s progress towards achieving its ambition in terms of the 2020 and 2021 objectives.

Finally, this is a new look of report so, separately, if you have any feedback about how it works for you, we would be very pleased to take that.

It is landscape.

It is, and it has got more pictures.

I liked it very much. I thought that it was a lot easier to read. Thank you very much.

I think that we can all agree that Highlands and Islands Enterprise and the Scottish Government have made great progress with this. Certainly, as a member, I have had regular updates from HIE, so I thank it for that. Some of these answers will probably be covered in the conclusions, but I would like to explore them a wee bit further if I may.

My first question is whether the £156 million is money well spent.

That is a very good question. I think that there is every chance that—the response from Highlands and Islands Enterprise in particular is very strong on this—had this money not been spent by the public sector, remote and rural communities in Scotland just would not have got access to superfast broadband.

As I think the HIE response points out and as our previous report mentioned, there was very limited coverage in some parts of Scotland, where superfast broadband was just not going to be commercially viable. Given that, as we say, access to broadband is pretty much essential these days, in particular if you are running a business, in that sense it seems to me that it is important that Government stepped in to deliver broadband. The contract is being delivered well and on time and indeed is a bit ahead of where we expected it to be.

As Fraser McKinlay said, this is a follow-up report. Our original report said:

“In 2012, the Scottish Government used consultants to calculate the impact of the investment in superfast broadband on the Scottish economy.”

That work by consultants identified that public sector investment in broadband across Scotland would

“benefit the economy by £1 billion with a further £2 billion economic benefit by 2028.”

In the key messages of the progress update, paragraph 2 refers to £23 million, which I think is the gain share from the higher-than-expected take-up, but paragraph 3 refers to an additional £42 million. Is that extra Scottish Government funding? I have looked through the report several times.

It is split: 50 per cent from the UK Government and 50 per cent from the Scottish Government. Outside of the current contracts, the Scottish Government is still to decide how the money is going to be used in the future.

The report says that the take-up rate of 30 per cent is good, but if you had asked me whether I thought that 30 per cent was good, I am afraid that I would have said that maybe we could do a little bit better. What are the reasons for the 30 per cent rate? Is it a lack of knowledge? I know that people have come to me in the constituency saying that they were not aware that they had to change their package, as they had thought that they would just be automatically connected to it once the fibre went in. Is it a lack of need? Do people not need the speeds that we are providing for them, or are the packages too expensive?

You make the very important point that, at the end of the day, this is going to make the difference only if people have superfast broadband and use it, so the take-up rate is important. I think that the level of take-up is pretty much—or slightly ahead of—what people were expecting to have at this stage point. I think that Sarah Davidson’s response to the committee talks about some of the promotional work that the Government, HIE and others, including BT, are doing to encourage take-up.

I will ask the team to say a wee bit more about what some of the issues are.

I am not sure I can add an awful lot. We have not looked specifically at why not everybody is buying into broadband. I think that some of the ideas that you suggested seem perfectly reasonable explanations as to why that is not happening. It certainly is an area of work that Highlands and Islands Enterprise in particular, working with BT, is trying to push. They are making a concerted effort to market the benefits of broadband and to try to increase that take-up rate.

On page 7, the update says:

“The areas that remain are more remote and likely to need more complicated and costly engineering.”

Do you think that the Scottish Government knows exactly what that entails yet? In the following paragraph, it says that there is a £1,700 cap on each premise. Obviously, if the more costly engineering has to come in for us to roll superfast broadband out to 100 per cent of premises, we will have to think seriously about whether that cap appears in the next contract. Do you agree?

I will say a couple of things on that and then ask Graeme Greenhill to come in on the specifics. One of the key things that the Government needs to do—and is doing—is to look at what happens beyond the end of this contract. As the response and the report say, the Government will be moving into procurement early in 2017, so it is very important therefore to consider exactly those kinds of issues. Given that the final 5 per cent across the UK—this is not just a Scottish thing—was always going to be the most difficult 5 per cent to reach, it is almost certainly going to need a different kind of approach. We would expect the Government to consider things such as the cap, although it is fair to say that, although there has been a cap, the vast majority of premises have still been connected. There have been very few where the project has said, “No, we are not doing it,” because it has decided to invest in making sure that people are connected. However, all of that stuff absolutely is wrapped up in the recommendation here that the Government should now consider how it can reach full roll-out and achieve its 2020 vision.

11:15  

The only thing that I would add is that we should not forget the role of community broadband Scotland. Community broadband Scotland is there to nudge things along in areas where BT is not going to go as part of these contracts. They tend to be remote rural areas where there must be a good chance that the cost will be higher than the £1,700 cap that is in the BT contracts.

On page 8, the report talks about the information that is given, because a lot of communities that do not have access to the superfast network are quite impatient—and rightly so—to know when that will be coming, if it will be available. If it will not be available, can they get an interim measure through community broadband Scotland such as access to satellite?

In the little box on the right-hand side of that page, there is a reference to information that is on the digital Scotland, Scottish Government and HIE websites; I find that ironic considering that a lot of communities will not have access to the internet and therefore will not be able to access the information that is on those websites. How are we getting that information out to people in other ways?

That is a very good question. One of the reasons why we made the recommendation about that last time, and indeed repeated it this time, is that we think that more progress needs to be made in the public reporting of performance. Specifically, if BT is not going to roll out broadband in a particular area, it is important for everybody to know that as early as possible, so that they can start making alternative arrangements. That is a message that was similarly made by the Culture, Media and Sport Committee at Westminster earlier in the year. In order for the likes of community broadband Scotland and other organisations to plug the gaps, they need to know where there are going to be gaps.

Your point about accessing information is a good one. We would encourage the Government and others always to think about different ways of getting those messages out there.

On page 9, we see that HIE reports that there is a delay in receiving invoices from BT. Does that cause HIE any difficulties? It also says that BT is currently reviewing the financial model; could you say a bit more about what that means?

I am not aware of a delay necessarily causing HIE many difficulties. Clearly, if there is a delay in invoices being submitted, HIE will need to be careful in how it manages its available cash, just in case it spends in other areas and is then hit by an invoice that it was not expecting.

The point about BT currently reviewing the financial model is really all about the timing of the work and how it is intending to extend broadband coverage and what the likely cost of that is. Basically, BT needs to keep reviewing where it is with rolling out the project and what financial consequences are arising from that roll-out.

Very briefly, one of the reasons why we are keen to follow up in a couple of years’ time is that we will want to get a final view at the end of the contract. In that sense, the invoices being submitted and paid is important, because we want to be able to report on the final picture. I notice in HIE’s response to the committee that it says that it is continuing to work with BT to try to improve that process. It is a situation that existed when we reported last time and, apparently, there is a backlog that is being worked through. Certainly, when we come back to report, we will be very clear about the final position on the contract, by which time all that stuff should be resolved.

I will just pick up on Graeme Greenhill’s point about HIE having to delay spending in other areas because the money is being kept back. Is that a difficult—

I did not want to give the impression that that is what is happening. I was making the more general point that, if HIE knows that invoices are expected, it needs to be careful about budget and, accordingly, not spend money that it might not necessarily have if those invoices arrived.

Thank you for that clarification. On page 10, you speak about the better broadband scheme. How is that being promoted, because I think that the take-up has been quite low at the moment? Going back to the point about communities maybe accessing satellite, how can we promote that scheme better?

The better broadband scheme is administered by the Department for Culture, Media and Sport, so we have not really looked at it as part of this exercise and cannot say why take-up has been so low so far.

We can take a look at that, though, if that would be helpful. The first question is whether people are aware that the scheme is available, which is a very important point. Secondly, there will then be a judgment for people about whether it is worth it, whether it is going to be significantly enough better and indeed when they might be getting the faster speeds coming down the road. We were equally interested in the fact that only 500 premises have applied and only 50 have taken up the offer. That seems very low and it may be that we can look at that as we move forward into the next piece of work.

I have three final questions. The R100 programme is a Scottish Government commitment. Is it achievable, how does it fit into the commitment from the UK Government and how much is it going to cost?

It is difficult for me to give a concrete answer to any of those questions, unfortunately. One of the reasons why we were very keen to make the recommendation on that again in this report is that we are very keen to see more detailed plans for the 100 per cent roll-out and we will be looking closely at that as the procurement goes through in 2017 and the plans are then implemented. There is no doubt that it is an ambitious vision and that the Government has set itself a big task to do that.

As to how much it is going to cost, I really would not want to speculate. We will be interested in making sure that there are clear costings in place and that there is a clear budget. We have talked about the stuff that we know about, such as the additional £42 million. We are still not clear exactly how that is going to be spent, so I think that our first port of call will be to better understand the Government’s plans for spending that money, and we will then expect to see it set out any additional investment that is required to deliver the vision further ahead.

Thank you.

Because of the time constraints, I will just fire three questions at you, one after t’other. First, following on from the question that was just asked, when I am next out in the constituency—in the Angus glens or near Fraserburgh—and someone asks me, “Will I have superfast broadband by 2021?” do I tell them, “Yes,” or, “Possibly”?

Are you pausing on that one?

I will pause on that and let you answer, because people are watching.

I am going to sound as if I am ducking the question, although I hope that I am not, but it depends what you mean by “superfast broadband”. That is part of the question because, as we say in the report, to be fair to the Government and BT, there are lots of things affecting the speed that people receive in their homes that are not within the gift of the Government and BT, such as how far away someone is from the cabinet, the state of the wiring in their house and the kind of contract they are on. As far as we can tell, the commitment is pretty clear that there will be access on any device anywhere anytime by those dates. That is the commitment and that is what we will be measuring. That is why we have already said that we will want to come back in 2018, by which point I would hope to be in a position to answer your question better than I probably have just now.

Secondly, what does “world-class” relate to? We are talking about having “world-class” broadband. Does that refer to coverage or to the calibre of the delivery, and will it still be “world-class” in 2021?

That is another very good question. We have said in the report that the Government needs to be clear on its definition of “world-class”. What does that mean for people in Scotland in terms of accessibility to broadband, coverage and speeds? That is not entirely clear to us, which is why we have recommended that the Government make it clearer.

Page 14 tries to set out the breadth of what is involved in world-class infrastructure. The definition is not just about broadband fibre; it is about all the other things that we mention in the exhibit on page 14. It is a multifaceted set of things that need to be in place, all of which will interact with one another.

The final question is just to put my mind at ease. On page 3, you talk about how the funding is put together and say:

“The Scottish public sector as a whole is expected to contribute funding of £165 million. The balance will be provided by the UK Government, the EU and BT.”

Is there any impact on that EU funding as a result of recent events?

The EU money is coming from the European regional development fund. It required to be spent by the end of 2015, so there should not be any impact. What money the projects were going to get from ERDF should be in by now and spent by now.

Thank you.

My question is very short and it is related. We discovered in the consolidated accounts a couple of weeks ago that there is a £14 million shortfall in ERDF structural funds. On page 10 of this report, it says that the Scottish Government has used innovation fund money to make up a shortfall in the ERDF funding. Are those things related?

Again, I draw your attention to the previous report that we produced on broadband where that kind of issue is covered. When the Government was originally thinking about extending broadband, it identified potential ERDF funding of £20.5 million. At that time, it expected the EU to classify the project as revenue generating. The EU decided otherwise, which meant that the rate of grant dropped from 40 per cent of eligible expenditure to 25 per cent. Therefore, instead of expecting £20.5 million from the ERDF, the Government revised its calculations and ended up with a figure of £13 million. Innovation fund money is being directed to make up the difference between the ERDF calculations of £20.5 million and £13 million.

This is a separate shortfall in ERDF funding from the one that we identified in the consolidated accounts?

Correct.

Thank you very much. Thank you for your evidence today. We will now move into private session as previously agreed.

11:28 Meeting continued in private until 11:33.