Olympics Under Budget?

In a remarkable display of financial ignorance, the Olympics Minister Hugh Robertson has said that he is increasingly confident that the 2012 Olympic Games will come in under budget.

For why?

Current figures show that the £527M contingency budget has yet to be touched.

All very well, maybe. However, Robertson ignores the elephant in the room.

When the UK organically tendered for the games the "budget" was £2.4BN. This "moveable feast" has subsequently grown to £12BN (including £2BN running costs, which the media and politicians conveniently forget to mention).

On budget?

Don't make me laugh!

Olympic Medals won during the Beijing 2008 Olympics

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Raiding The Contingency Fund

It seems that the much used Olympics contingency fund will have to be raided again, this time to cover previously undeclared maintenance and security costs (estimated at between £150M-£230M).

The £2.7BN fund has already been depleted by £1.3BN.

The raid on the contingency fund can only be made after approval from a committee of senior ministers, including the Chancellor of the Exchequer.

They need to ask why these costs were not identified before, when the "budget" was being prepared.

Olympic Medals won during the Beijing 2008 Olympics

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Terrorist Contingency Fund

The organisers of the London 2012 Olympics have released £19M from the £2BN contingency fund, in order to improve the protection of Olympic sites from terrorist attack.

Of the £2BN contingency fund, £700M has been released.

Olympic Medals won during the Beijing 2008 Olympics

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Jowell Nationalises Olympic Village

As expected, the private funds for the London Olympic Village have simply dried up, as the hapless Olympics Minister (Tessa Jowell) was forced to announce that the village has been "nationalised".

In other words the taxpayer is paying for construction, using the part of the contingency fund. To date £1.4BN of the £2.7BN fund has been used. Given that the Olympics are still three years away, this rapid draw down of the fund is somewhat alarming; and underscores the fact that the the Olympics budget (currently standing at £12BN including £2BN running costs) is not worth the paper that it is written on.

The "good" news, according to Jowell (quoted in the Telegraph) is that:

"It is clear that investing in the village will now save public money in the long term".

This of course is complete bollocks, as hosting the Olympics was never a compulsory event; ie no Olympics, no cost!

Olympic Medals won during the Beijing 2008 Olympics

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Another Raid on The Contingency Fund

True to form, the financial black hole that is the London Olympics 2012 continues to suck ever increasingly large amounts of cash out of the hard pressed British taxpayers.

The government are discussing a further raid, estimated to be around £400M, on the Olympic contingency fund in order to make up the shortfall in private sector funding for the Olympic village.

The Government raided the fund to the tune of £326M in January.

The "budget" currently stands at £12M (including £2M running costs).

Olympic Medals won during the Beijing 2008 Olympics

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The Olympics Defies The Laws of a Recession

Despite the fact that we are now facing the worst recession for decades, the costs of the 2012 Olympics are defying normal economic laws during a recession and are continuing to rise.

The Telegraph reports that the cost of venues have risen by £97M in the last year, and are projected to rise by a total of £371M by 2012. It also notes that there is now only £500M of the £2BN contingency fund left to cover unforeseen emergencies and shortfalls.

Despite all of this the hapless Olympics Minister, Tessa Jowell, stated:

"This shows we are on course to remain on budget despite the economic downturn."

Jowell may care to reflect on the accuracy of that statement. The original "budget" for the Olympics was around £3BN, it now currently stands at £12BN (including £2BN running costs).

Precisely how can she claim, with a straight face, that the budget is "on course"?

Olympic Medals won during the Beijing 2008 Olympics

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Contingency Fund

The government has released £496M from the £2BN Olympics contingency fund.

The government is sticking to the line that there is sufficient contingency within the £12BN "budget".

We shall see.

Olympic Medals won during the Beijing 2008 Olympics

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Bailout

As predicted, the credit crunch has negatively impacted plans for the 2012 London Olympics.

The contingency fund has been tapped to provide £95M to bail out part of the project.

The Olympic Village project was originally intended to be a public-private partnership. However, the contractors (Lend Lease) have a funding shortfall of £250M. It is likely that further taxpayers' money will be needed to bailout the games.

Olympic Medals won during the Beijing 2008 Olympics

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The Austerity Games

The ongoing turmoil in the financial markets and credit crunch has negatively impacted the ability of the Olympic Delivery Authority (ODA) to raise funding to build the 2012 Olympic Village.

The ODA says that has only raised half of £1BN needed for the athletes' village and media centre in Stratford, East London.

The shortfall may have to be taken out of the Olympics contingency fund.

As noted many time before the budget for the games, even before the credit crunch, was a work of fantasy; ballooning from £3.4BN to currently £12BN (including £2BN running costs).

The last time that the games were held in London, in 1948, the UK was experiencing an austerity economy as the country struggled to get back on its financial feet after the war.

It seems that the organisers of the 2012 Games may have to adjust their expectations accordingly, to an "austerity" mindset.

Olympic Medals won during the Beijing 2008 Olympics

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The Untouchable

Whenever a politician claims that a particular sum of money is "ring fenced" for a specific purpose, much like when they open their mouths, always assume that they are lying.

We were promised by Tessa Jowell that the £2.2BN contingency fund set aside for last-minute costs of the 2012 Olympic Games was "untouchable", and would be locked away for years.

It should therefore come as no surprise to learn that ministers are now planning to use a large chunk of that fund, in order to ensure that the Olympic village is built as planned.

Negotiations on the public-private deal between the Olympics authorities and Bovis Lend Lease, the development firm selected to build the village, have hit a "snafu" as a result of the credit crunch.

Bovis Lend Lease is apparently having difficulties raising the necessary money to fund the £2BN project. Bovis Lend Lease is also understood to be concerned that a London property price crash would drastically reduce the amount it could recoup when selling or renting the homes in east London after the games.

To the rescue comes the "untouchable" fund. In order to release the money, Jowell and Alistair Darling have to give approval.

The question is what happens when the "untouchable" fund is all used up, and that there is another funding "emergency"?

Oh, wait a minute, the budget will simply be increased - problem solved!

The Olympics, a licence to print money!

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The Ostrich Budget

The government received a damning blow to its reputation for "financial competence" (I use that phrase with heavy irony) yesterday, when the Public Accounts Committee accused it of "wishful thinking" over the "budget" (an exaggerated term for the back of an envelope calculations) prepared by those "in charge" of the London 2012 Olympics.

The Committee warned that taxpayers may well have to pay more than the current £12BN (including £2BN running costs) estimated for the games. My own "thumb in the air" estimate is that the final bill will be around £20BN.

The Public Accounts Committee said that the Government excluded key costs from its original budget and more money would be needed, despite an "astonishing" injection of an extra £5BN.

The Committee found serious fault in the way ministers drew up and presented their original budget, and accused the DCMS of ignoring predictable costs.

Edward Leigh, the chairman, said that the department "ignored foreseeable major factors" such as contingency planning, 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."

The Committee warned that the revised official public sector funding package "does not include all of the activities on which delivery of the Games and its legacy depends".

In other words, the costs will go beyond £12BN; the government, like an ostrich, has had its head in the sand when it prepared the "budget".

For example, the costs of Government departments working on the Games, as well as the costs of improving wider transport links are outside the budget.

-Why?

-What kind of budget was this?

-Did anyone competent actually participate in its formulation?

Never entrust major long term projects to politicians. They do not have the skills, experience, qualifications or desire to manage them through from start to finish.

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The Olympic Catastrophe

The budget and management of the London 2012 Olympics will get another well deserved kicking next week.

The Commons public accounts committee will publish a scathing report next Tuesday about the Games.

Don Touhig, who is on the committee, branded the ever spiralling budget as likely to go "into the Guinness Book of Records for the most catastrophic financial mismanagement in the history of the world".

Amongst the many budget concerns it seems that the cost of buying land for the Games, and compensating its previous owners, will be £30M higher than originally forecast.

The London Development Agency said the original budget for taking possession of the Olympic Park site in Stratford had been £594 million, but by the end of the last month £578.4million had already been spent.

In reply to a freedom of information request it added:

"The current estimated outturn budget for land and disturbance compensation payments is £624.41 million, with the increase of £30.37 million funded from the approved budget contingency."

Rather perversely the extra costs do not form part of the Olympics budget (which I believe will rocket to £20BN). An LDA spokesman said:

"Such costs are not included within the overall Olympic budget but, in any event, this does not affect in any way the £9.3 billion total outlined by Tessa Jowell to Parliament last year."

Jonathan Stephens, permanent secretary at the Department for Culture, Media and Sport has said that the Olympic project was equivalent to building something twice the size of Heathrow Terminal 5 in half the time.

Well, we all know how "successful" that has been don't we?

Emergency Funding

In a sure sign the the budget for the London Olympics 2012 is well and truly out of control, and the organisers are panicking, Olympics officials have not ruled out having to spend all of the £2.7BN.

This was set aside to pay for cost overruns on the London 2012 Games.

David Higgins, chief executive of the Olympic Delivery Authority told the Department for Culture, Media and Sport committee the contingency is "prudent".

He said the authority does not intend to ask for extra funds.

Until, of course, he needs them.

They know full well that they have the government by the balls on this, and there is no way that the politicians will be involved with a "failed" Olympics.

Such a pity that it is the taxpayers' money that is being used to prop up the failed careers of second rate politicians.

The budget currently stands at £12BN (including £2BN running costs), we can be assured that the final figure will be much higher.

IOC President Lambasts London Olympics Budget

The chickens are well and truly coming home to roost for the government and the organisers of the London 2012 Olympics, over the spiralling and out of control budget (currently £12BN including running costs) for these unwanted games.

Jacques Rogge, President of the IOC, has put the boot in by saying that the government handling of the budget review had imperilled public support.

Rogge, being a true politician, tries to pour oil on troubled waters by noting that much of the increase can be accounted for by the fact that 2004 prices were used in the bid and VAT was ignored.

Disregarding that spin, he then notes that the huge increase in the headline figure has led to public uncertainty.

He is quoted in The Guardian:

"There are two issues that have made things confusing for the general public because they were not included in the original budget.

These are elements that have been added to the budget. They are VAT, which was not included at the beginning, and the second is a strong contingency fund, all of which gives the idea to the general public that there has been an escalation. In fact these are new elements.

Another issue is that in the bid books we had 2004 prices, but we are speaking about a project that will culminate in 2012 ... and that creates confusion among the general public who think that the budget has exploded.

There is a perception that there is a big difference but if you look at the constant impact of inflation it's not such an explosion."

Whatever political spin is put on the £12BN cost figure that the taxpayers are now facing, can't hide the fact that £12BN is a very large sum of money (one which will rise as the deadline draws ever closer) and that one that the British taxpayer does not want to fund.

The organisers by their ineptitude and spin tried to hide the true cost of the games when they made the bid, as they knew that the public would never have supported them.

The chickens are well and truly coming home to roost, and the politicians are finding it more difficult to hide the true costs of the games.

Significant Uncertainties

The National Audit Office (NAO) have warned of "significant uncertainties" over the costs London's 2012 Olympics.

No kidding!

The NAO said the £9.3BN (excluding the £2BN running costs of the infrastructure) was "sufficient to cover the estimated costs of the Games" as plans stood.

However, it then went on to say that this was true only "with the important proviso that the assumptions on which the budget is based hold good".

Which is Whitehall speak for saying that as soon as things change, as is the nature of life, so will the budget.

A pretty lame statement in my view.

The NAO warned that the Olympics involved "a high level of inherent risk".

Tessa Jowell, of the Department for Culture Media and Sport (DCMS), said:

"We are determined to keep an iron grip on costs. That is why we have set in place rigorous cost oversight procedures within Government, including a cross-Government ministerial funders committee and task force to assess any requests for further contingency funding under strict criteria."

She would say that, wouldn't she?

The costs have rocketed from £3BN to £12BN, thanks to the inept and incompetent management by Jowell and the DCMS.

Never entrust a politician with the management of a large scale, long term project.

We can be assured that by the time the Olympics have been held, the current budget of £12BN will have long since been overrun.