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Cash crisis looms

The £550 million funding for the London Olympics will initially come from London council tax payers, £1.5 billion from the National Lottery, followed by a further £75 million from council tax, and £250 million from the London Development Authority (LDA). The International Olympic Committee (IOC) insists that host cities underwrite all liabilities. £15 million was spent on the London bid alone (Blowe, 2004; 2005).

The Department of Culture and Sport points to a "raid on Lottery monies", a reduction of funding to the tune of £64 million per annum, 2005-2012, hitting small organisations all over the country (Blowe, 2004). The Observer (March 26, 2006) quotes substantially greater figures: "£340 million to be taken away from the Sports Lottery Fund to feed the Olympic project, with the possibility of a further £410 million being diverted through a re-arrangement of percentage shares of National Lottery proceeds". Lottery monies from an Olympic card are raising "over one million a week" according to Lottery chief Dianne Thompson (BBC NEWS, September 21, 2005), but this is half the required amount needed for the stated £750 million to be raised by the card by July 2012. Camelot however, claimed in May 2006 to be well ahead of their targets (L. Gault, Daily Telegraph, May 14, 2006).

We anticipate budget overspend. As mentioned in Briefing Paper 1, The Observer reports (D. Campbell, The Observer, September 18, 2005) that "London 2012 sources admit privately that some of the costs [...] were deliberately under estimated or disguised during the bidding process". Apparently, London 2012 planned initially to buy 20% more land than the 178 hectares of the Olympic area. Sums budgeted as compensation for displaced firms are acknowledged to be too low (they state that it is expected that land tribunals will set higher amounts) and decontamination costs "could escalate". The paper reports that one LDA official said that "the total bill (for land and decontamination) could be three times higher" than anticipated. Associated Press (November 2, 2005) quoted Mary Reilly, Chair of the LDA, who said that the budgeted amount did not include buying new sites for relocated firms. Buying land and relocating businesses could cost (she said) twice the original estimate, although this was acknowledged as "a worst case scenario". The Observer article (again, September 18, 2005) reports that ministers have covertly awarded an extra £1 billion to ensure delivery. An earlier article in the paper (M. Mathiason, August 14, 2005) suggested that budget overspend would be footed by the Office of the Deputy Prime Minister, affecting aggregate housing target delivery in the South East and regeneration projects in northern industrial towns. Meanwhile, Culture Secretary Tessa Jowell has refused to bow to Tory demands for a cap on council tax levy in London if costs escalate (Evening Standard, October 25, 2005). An article in The Times (P. Webster, July 6, 2006) stated that ministers would be asked to increase the overall regeneration budget to £5 billion after a reappraisal of facilities, costs and legacy proposals. A decision will be made in the autumn.

Sydney 2000 cost over twice the pre-bid figures. Barcelona 1992 left a US$20 million debt (Murphy, 2004). In Athens, total costs will be at least four times as high as the bid committee's initial budget (Blowe, 2004; The Observer, September 19, 2005). The Observer reports (Mathiason, ibid) that "Greece had its credit rating downgraded by Standard & Poor at the end of last year, in large part because of the cost of staging the Games". In Vancouver, the federal government has ordered a comprehensive audit of the millions of dollars it gave the organisers of the Vancouver 2010 Winter Olympics, just two weeks after it agreed to give the Vancouver Organizing Committee an extra $55 million to help finish sports venues. The new Conservative government has raised questions about whether the $290 million it is contributing through the Department of Canadian Heritage is being properly spent (J. Lee, Vancouver Sun, October 5, 2006).

Here it is worth remembering that 12 months before the Commonwealth Games in Manchester, the government needed to provide an emergency cash injection of £105 million. Sceptics of the Olympic proposals also point to the disaster of the Millennium Dome, the delays and spiralling costs of the new Wembley Stadium, and the abandoned plans to stage the 2005 World Athletics Championships at Pickett's Lock in Enfield (cancelled after a review which suggested that the original £87 million scheme would cost significantly more).

"We will be locked into paying whatever it costs to be ready on time; under the rules of bidding, the International Olympic Committee insists that host cities underwrite all liabilities of the Games. By doing so, each household in London is effectively taking out a £1,300 insurance contract on the 2012 Games".
Kevin Blowe (2004) London's Olympic Myths, www.radicalactivist.net

Just like Pepsi setting up a bottling factory in India, people needing new jobs and urban improvement want to believe the promises that the Olympics seems to offer. Just like other multinationals, governments are willing to tempt the Olympic business to their countries by offering public funds to pay its enormous infrastructure costs.
Kevin Blowe (2005) Bidding for Disaster, Radical Activist Network newsletter, Spring edition - www.radicalactivist.net

Utilities bills may be forced upwards to cope with the extra demand that the Games and its Legacy developments are anticipated to make on supply. Thames Water Chief Executive Bill Alexander is considering appealing to the water regulator for an "interim determination" to help raise monies for infrastructure investment to meet Olympic demand (A. Jameson, The Times, September 12, 2005 [1]). The company is proposing two major extensions to its London Ring Main to improve water supply flexibility to the east of the city. In January 2006, the Thames Tideway Strategy Group recommended that the government build a £1.7 billion 'super sewer' under the Thames, stretching from Hammersmith to Barking, to prevent sewage overflow, which potentially could mar the Games. This would add £45 to Londoners' annual water rates (M. Weaver, The Guardian, January 21, 2006), although the scheme is described by water regulator Ofwat as too risky. Bill for the burial of overhead power lines (direct or tunnelling) should be passed onto the developing agency. However, extension of the National Grid itself, necessary for the Legacy developments, is footed by the customer (Letter from National Grid to Waltham Forest Planning Department, October 8, 2003). The Construction Products Association argues that rising energy costs could add £90 million to Olympic delivery (CN, May 4, 2006).

Paul Dales of consultancy Capital Economics calculated in May 2005 that the total benefit of the London Olympics to the British economy would be 0.34% of GDP over seven years, or just 0.05% per annum, in a word, "negligible" (A. Patrick, Daily Telegraph, May 21, 2005). Consultants Arup, working for the LDA in 2002, placed possible benefit at a net gain to the UK economy of £82 million (a fraction of the total costs of development), with a downside risk of £145 million (Crookson, 2004).

Tory councillors in outer London boroughs Barnet and Richmond-on-Thames have protested the disproportionate levy on their often elderly constituents. Reuben Thompstone candidate in Woodhouse ward in Barnet has demanded that the Olympic boroughs where infrastructure is being improved should contribute a larger share (as things stand, he claims, Barnet council taxpayers are paying £4 million more than those in Newham)(Letter to Edgware & Mill Hill Times, April 6, 2006; L. Marzouk, This is Local London, March 9, 2006). Leader of Richmond council and GLA member, Tony Arbour, has called for the Games to be funded nationally (H. Farquharson, This is Local London, February 17, 2006).

This essay is part of the Games Monitor briefing papers available for download from our Media Centre page.


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