Developing a Methodology for Costing
the Impact of Digital Exclusion
Dr Leandro Carrera and Chris Gilson
LSE Public Policy Group
Structure of this presentation
1.
2.
3.
4.
5.
Identifying the digitally excluded
Estimating the ‘benefits foregone’
of digital exclusion
What would tackling Digital
Exclusion cost the government?
Applying a cost-benefit analysis to
assess the feasibility of tackling
digital exclusion
Conclusions
1. Identifying the digitally excluded
Identifying clusters


The study team started with a principal
component analysis of OxIS’s survey data
(Helsper and Margetts) to identify key groups or
‘clusters’ of the population which suffer from
digital exclusion
From these data the main groups identified were:



those who are economically disadvantaged
(unemployed and low income )
those who are disadvantaged in relation to age and
mobility
those who are educationally disadvantaged
Estimating the size of the clusters



For the three groups, our estimates show that around 6m
people are digitally excluded
Other studies, have shown that the scale of digital and social
exclusion is around 4-6m (CLG, Digital Inclusion Team)
Thus, our estimates are representative of the scale of digital
exclusion suffered by under-privileged groups
Total number
in group
(millions)
Number not using
internet (million)
Percentage not
using internet
Low income unemployed
2.2
1.2
53
Elderly and disabled
2.8
2.3
80
Educationally
Disadvantaged
(Employed/Basic
Education)
8.6
2.5
29
Total
13.6
5.9
43
2. Estimating the ‘benefits
foregone’ of digital exclusion
Conservative estimate of total benefits
forgone for citizens who are digitally
excluded
Low income
unemployed
Elderly and
disabled
Educationally
Disadvantaged
(Employed/Basic
Education)
Estimated total per
person per year
(£)
Estimated total Benefit
Time lag in finding a job from
unemployment – missing web search
441
310
Probability of missing JSA payments due to
lack of information
64
13
Missed savings from being unable to
compare prices online
283
135
Missed savings from being unable to
compare prices online
283
358
Greater costs incurred through potentially
unnecessary GP visits
2.5
5
Delay in receiving attendance allowance
through lack of information
112
48
Missing out on opportunities for promotion
and for better paid jobs through lack of
'digital' skills
995
1,855
Missing out on the positive pay and
promotion consequences through elearning
832
559
Missed savings from being unable to
compare prices online
283
542
(£ million)
Total
3,824
Estimated benefits forgone for government
Total Benefit
Initiative
(£ million)
Low Income Unemployed
Reduced admin costs through
placing JSA online
9
Elderly disabled
Savings to NHS for reduced number
of potentially unneeded elderly GP
appointments
12
Educationally
Disadvantaged
Reduced costs through providing
outreach online rather than in person
(e.g. JCP has 9,300 personal
advisors that meet with customers)
18
Total
39
Estimated benefits forgone for the economy
Total Benefit
Initiative
(£ million)
Low Income
Unemployed
Elderly
Educationally
Disadvantaged
Total
Estimated output gains through
increased employment and
productivity
310
Helping informal carers to stay in
work through telecare or other
forms of digital monitoring, e.g.
email/webcam
42
Labour market (incl. pay scale
mobility) improvements through
e-learning
1,856
Labour market improvements
(incl. greater job and promotion
opportunities) through increased
digital skills, e.g. email and
internet search
560
2,767
Estimating the benefits foregone


To estimate the costs of digital exclusion,
it is necessary to focus on the activities
most frequently performed by each group
that could be performed online rather
than in person
For each of our clusters, we identified
three specific activities that these groups
would be most likely to benefit financially
from being able to do online
On-line activities which would benefit the
digitally excluded

Cluster 1: Unemployed, low income




Cluster 2: Elderly disabled and retired




Online job search
Finding benefits information online
Saving money through online shopping, price comparison
sites
Using the Internet to look for health information and
reduce number of GP visits
Finding benefit information online
Saving money through online shopping, price comparison
sites
Cluster 3: Educationally disadvantaged,
Unemployed



E-learning activities
Using the Internet for work related tasks (like job search)
Saving money through online shopping, price comparison
sites
Estimating the “benefits foregone” from
a lack of involvement in online activities

We assumed that the costs of being digitally excluded can also be
seen as ‘benefits foregone’

We also assumed that the ‘benefits foregone’ can be divided among
those for the citizen, the government and the economy



For example, for the low income unemployed, finding that they are
entitled to an extra-week of JSA online can be also taken as a benefit
for government as DWP will save money from removing the phone
section from the JSA application process
Our assumptions for this section were based on best data and
literature available. Subsequently, these assumptions were discussed
in a specialised online discussion forum from which we obtained useful
insights to improve some of them
Our estimates show the total ‘benefits foregone’ over the course of a
five-year period
Benefits foregone for Cluster 1: low income
unemployed

Benefits foregone to the Citizen:




Benefits foregone to Government


Missing Jobseeker’s Allowance (JSA) entitlement for the
Low Income Unemployed Group
Finding a job through online job search
Price comparison
Savings thanks to on-line applications for Jobseekers
Allowance
Benefits foregone to the Economy:

Productivity gains from reduced unemployment
Benefits foregone for Cluster 2: elderly,
disabled and retired



Benefits foregone to the Citizen:

Attendance Allowance

Price comparison

Reducing GP visits
Benefits foregone to Government
 Reduced GP time
Benefits foregone to the Economy:

Reduced costs for informal social care for dementia
sufferers
Benefits foregone for Cluster 3: educationally
disadvantaged and employed



Benefits foregone to the Citizen:

Pay scale mobility through digital inclusion

Pay scale mobility through e-learning

Price comparison
Benefits foregone to Government
 Reduced costs of providing training on-line to this group
Benefits foregone to the Economy:

Productivity gains from enhanced e-learning activities and
promotional and job possibilities with digital skills
3. Estimating the costs for government
of tackling digital exclusion
Estimating the costs of a government
initiative to tackle digital exclusion
Year 1 (£
million)
Year 2 (£
million)
Year 3 (£
million)
Year 4 (£
million)
Year 5 (£
million)
Total Cost
(£ million)
8
60
30
30
23
150
Cost of providing internet
access
261
80
80
80
80
580
Cost of providing internet
access
646
194
194
194
194
1,423
0
0
55
148
166
369
565
172
172
172
172
1,253
1,480
506
531
624
635
3,775
Moving JSA online
Low income
unemployed
Elderly and
disabled
Extra-provision of elearning courses
Educationally
Disadvantaged
(Employed/Ba
sic Education)
Cost of providing internet
access
Total Costs
Costs to govt per group per year for
providing online access
Cost (£millions)
700
600
500
400
300
200
100
0
Year 1 Cost
Low income unemployed
Year 2 Cost
Elderly and disabled
Year 3 Cost
Year 4 Cost
Year 5 Cost
Educationally Disadvantaged (Employed/Basic Education)
Maximum total benefits obtained from
digitally including all groups
Year
(£million)
Year 2
(£million)
Year 3
(£million)
Year 4
(£million)
Year 5
(£million)
Total
(£million)
Benefits to Citizen
650
463
502
1,087
1,123
3,824
Benefits to
Economy
164
148
386
974
1,095
2,767
Benefits to
Government
15
15
4
4
1
39
Total Benefits
829
626
892
2,065
2,219
6,631
Benefits per group per year in providing
online access
Benefit (£millions)
2,500
2,000
1,500
1,000
500
0
Year 1 Benefit
Low income unemployed
Year 2 Benefit
Elderly and disabled
Year 3 Benefit
Year 4 Benefit
Year 5 Benefit
Educationally Disadvantaged (Employed/Basic Education)
4. Assessing the feasibility of
tackling digital exclusion
A benefit-cost analysis



To assess whether it makes sense
for government to intervene, we
applied a benefit-cost analysis
The discount rate was assumed to
be 5% per year
A positive Net Present Value (NPV)
will indicate that the project is
worth implementing
The Net Present Value of fully tackling
digital exclusion
NPV (£ Million)
Net Present Values over 5 years (estimated)
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
-2,000
Year 1
Year 2
Net Present Cost
Year 3
Net present benefit
Year 4
NPV
Year 5
Conclusions and insights



The total NPV is positive, totalling
£2.3 billion over the course of the
five years
This indicates that the project is
worth being implemented
Even modelling a 50% reduction in
benefits at the end of the project
would yield over £500 million NPV
Conclusions and insights


Our estimates have been
conservative in not considering the
impact of alternative new
technologies such as i-pad, i-phone,
etc
However, there may be a
residualization problem in dealing
with those that are still digitally
excluded