Committee of Public Accounts: Press Notice

THE BUDGET FOR THE LONDON 2012 OLYMPIC AND PARALYMPIC GAMES

Publication of the Committee's 14th Report, Session 2007-08

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

"'Swifter, Higher, Stronger.' The Department of Culture, Media and Sport is certainly doing full justice to the second part of the Olympics motto when it comes to the cost of the London 2012 Games.

"The £9.3 billion budget for public sector funding of the Games, announced in March 2007, was more than £5 billion higher than the estimated cost at the time when the bid was made for London to be the host.

"The Department has assured this Committee that the £9.3 billion figure will not be exceeded. We will hold the Department to account for that promise.

"It is now clear that the estimated cost at the time of the bid, just over £4 billion, was entirely unrealistic. It ignored foreseeable major factors such as contingency provision, tax obligations, and policing and wider security requirements. At the same time, the estimate of the extent to which the private sector would contribute funding towards the Games has proved little more than wishful thinking.

"Despite the astonishing increase in the level of public funding for the Games, the Department did not specify in detail precisely what will be delivered for this money, including the legacy benefits. Without this essential information, the public will find it hard to be confident in the Department's ability to deliver the Olympics programme within the new higher budget."

Mr Leigh was speaking as the Committee published its 14th Report of this Session which, on the basis of evidence from the Department for Culture, Media and Sport and the Olympic Delivery Authority, examined the budget for the London 2012 Olympic and Paralympic Games.

At the time of London's bid to host the Olympic and Paralympic Games in 2012 the cost of the Games was estimated to be just over £4 billion. The costs were to be met by public sector funding of £3.4 billion, with a further £738 million from the private sector.

After London was awarded the Games, the Department for Culture, Media and Sport and the Olympic Delivery Authority reviewed the cost estimates and in March 2007 announced a budget of £9.325 billion. The Department has stated that public sector funding will not exceed this figure.

The March 2007 budget included contingency provision of £2.747 billion. This sum was not included at the time of the bid despite Treasury guidance that budgets for major projects should allow for the tendency to underestimate costs. Since March 2007, £500 million of the programme contingency has been allocated to the Olympic Delivery Authority to cope with early financial pressures. Clarification over the delivery structures for the Games means that the Olympic Delivery Authority incurs tax liabilities in the normal way, and this has added a further £836 million to the earlier cost estimates.

The March 2007 budget also included a preliminary estimate of £600 million for policing and wider security, over and above the cost of site security during construction. No estimate for the cost of policing and wider security was included at the time of the bid. In addition, the Olympic Delivery Authority's programme delivery budget has risen to £570 million, compared with an original estimate of just £16 million.

Whilst the cost estimates have increased by £5.3 billion, the public funding required to meet these costs has increased by £5.9 billion due to significantly lower expectations for private sector funding. Some £4.9 billion of this increase is to be met by the Exchequer and £675 million by the National Lottery, bringing the total Lottery contribution to £2.175 billion. The final cost to the public sector will depend on proceeds arising from the disposal of assets after the Games, in particular, the sale of land on the Olympic Park, as well as the share of profits expected once the Village is converted into housing and sold.

The estimate of £738 million private sector funding towards the cost of venues and infrastructure at the time of the bid was revised to £165 million (less than 2% of the total funding) in the March budget. In addition, whilst the Olympic Village had been expected to be fully funded by the private sector, the March budget included a £175 million public sector contribution to the Village. Private sector construction firms have a vital role in delivering the Olympic programme, but the Olympic Delivery Authority has had difficulty in achieving competition between bidders for contracts to deliver the main venues, with only one bidder emerging for the Main Stadium.

The prospect of longer term benefits from hosting the Games was central to London's bid. The Government has set out five high level legacy promises but more detailed plans have not yet been finalised. It intended to publish a 'Legacy Action Plan' early in 2008, and the Olympic Delivery Authority will be working with the London Development Agency during 2008 to set out arrangements for use of the Olympic Park after the Games.