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Where’s the Olympic money gone?

Having spent more than two years preparing London’s bid, which succeeded in
July 2005, almost another two years have elapsed, during which the cost has
grown two, three, four-fold. Or has it?

The job of getting ready for the 2012 Olympics is in the hands of two major
• The London Organising Committee of the Olympic Games and Paralympic Games
(LOCOG) is in charge of the running of the Games themselves. The bid team’s
submission to the International Olympic Committee outlined a budget of $2.46bn
(or £1.54bn at the exchange rate used in the report), which would be met by
funding from the IOC, sponsorship, ticket sales and licensing of merchandise.

• The Olympic Delivery Authority looks after all the capital and infrastructure
projects, preparing the site, building the venues and Olympic Village and
transport facilities. The non-LOCOG budget amounted to almost $16bn, though more
than $11bn of that related to rail and road links. The cost of the venues and
other Olympic infrastructure was put at $4.3bn, or £2.7bn. This is the budget
that is grabbing all the headlines, though, in fact, the new figures contain
many cost items that were not part of the original bid submission.

The IOC required both these figures to be submitted in terms of 2004
purchasing power; most subsequent figures being bandied around include inflation
up to 2012.

Doesn’t add up
But why should a budget be put together without including all the costs? There
may be two main reasons. The first relates to confusion and circumstances. The
second lies in the question, who’s in charge?

On 15 March, secretary of state for culture, media and sport Tessa Jowell
said that the ODA budget would be £5.3bn, comprising £3.1bn for the Olympic park
and venues (compared with an original estimate of £1.4bn), £1.7bn for
infrastructure and regeneration (up from £1.3bn), and a £500m contingency.

Included in these figures are price rises because of construction cost
inflation and a £400m bill for the private sector “delivery partner”, a
consortium called CLM, which will have the “overriding responsibility… to ensure
that the costs of the Games are kept within budget and that the timescales… are
kept”. So there we have a £400m unbudgeted cost designed to keep the budget
under control.

There have been some bizarre inter-departmental machinations relating to the
VAT bill. The original bid document made clear that there would be no VAT impact
on the LOCOG operating budgets, but said nothing about the capital expenditure
budget. As the latter is not covered by revenue such as sales and sponsorship,
there is no ordinary way of recouping the VAT bill, now estimated at £840m. But
as the VAT bill is largely being picked up by the government, it’s a circular
argument as to whether this is an additional cost or not.

The day after London won the bid in Singapore, London was the victim of the
7/7 bombs. While it’s valid to wonder whether the security costs ought to have
merited more attention in the original submission, the DCMS is now making a
provision of £600m for security, over and above original estimates.

The DCMS is also putting in a further contingency of £2.2bn so that, should
the need arise, it will be possible “to ensure the timetable is met and the
quality is maintained”, Jowell told the Commons in March. But the existence of
such a mouth-watering contingency fund virtually guarantees that contractors
will find a need for it to be drawn upon.

Separate from all of this are costs relating to the acquisition and
development of land by the London Development Authority, which will own the site
after the Games.

Who’s in charge
The second reason why the budget excluded some key costs could be that there is,
as the Public Accounts Committee heard in early March, no single person in
charge of the project. There is an Olympic Board to which the LOCOG and ODA are
responsible, but the Olympic Board comprises Tessa Jowell, the mayor of London
and the chair of the British Olympic Association. It is what DCMS permanent
secretary Jonathan Stephens called a “fundamental tripartite relationship”
between the host city, host nation and the Olympic movement.

Edward Leigh, the chairman of the PAC, said that “there is nobody where the
buck stops”, though Leigh did manage to extract from Stephens a promise that he,
the permanent secretary and chief accounting officer, would stay with the
project up to 2012 and beyond. Stephens told the PAC he was looking forward to
it. But he will have plenty of hurdles ahead of him.

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Philip Hammond