I'm no expert but having had a seized caliper on my old Passat some years back, I'm pretty sure it didn't need both changing.

Is this at a VW dealer?

It really is difficult being objective reading a post like this. Did you go into a garage and ask them for a price to replace the caliper diagnosed as needing a repair and they popped their heads under the car, and told you the rest of the work needing doing? If so, sadly recurring job drift to get the workshop bonus targets met, ask them what they thought a diagnostic was going to add to the diagnosis, not the bill, and move on.

If they said, they always fail in multiples (they don't unless the car has been parked for a few years) ask again what benefits adding the expensive wizardry of a diagnostic would add, and move on.

A garage not to be used again and a good reason to find a local, recommended, friendly garage to look after the car. A decent tech would have a look and tell if the old caliper could be cleaned up and reused, or the caliper needed replaced in an easy hour.

Does both the £700 and the 3.5 hours seem high for this job?

Yes. Especially if the piston can be unseized and made to move freely - use a bit of brasso polish. I wonder why it seized? Is it because the pads and disc have always been replaced too early so the piston has used hardly any of its travel along the cylinder?