Oral statement by Tessa Jowell on costs and funding for the 2012 Olympic & Paralympic Games, 15 March 2007

With permission, Mr. Speaker, it gives me the greatest pleasure to make a statement on progress towards the Olympic games and the Paralympics in 2012.

This will be the world’s greatest sporting event here in our country, but it will also act as a catalyst for the most ambitious regeneration programme in recent memory. That will include the largest new urban park in Europe for more than 150 years. There will be five new permanent sports venues and a number of temporary venues, which will be used around the UK after the games. The 1 million sq ft media centre for the games will provide in legacy a state-of-the-art business space. Four thousand homes will be converted from the village, and a further 5,000 will be provided elsewhere in the redevelopment. And there will be one of the largest shopping centres in Europe, which will involve an estimated £7 billion private sector investment. That money has been invested because we won the Olympic games.

Across the country, the games will inspire a whole generation of young people to play sport, volunteer in their communities and be proud of what their country has achieved. We chose to host the games at a site where the need was greatest and where the benefits would be most keenly felt. We chose east London, because of the challenge to regenerate one of the most deprived areas not only in the UK, but in the whole of Europe. The site of the Olympic park needs remediation before construction work can even begin. That work is well under way. Essential utilities for the area need to be installed. That work is also well under way.

Developing the Olympic village requires the largest number of homes ever to be built in one place, at one time in this country. The planning for that work is on schedule. As the National Audit Office report in January set out, when we bid for the games, we estimated the cost of the Olympic park, infrastructure and an element for community and elite sport at around £3 billion, plus an additional £1 billion as part of the wider lower Lea valley Olympic regeneration. This made the total cost of preparing for the games and Olympic regeneration just over £4 billion. Those costs were net of tax and of wider security costs.

I made it clear to the Culture, Media and Sport Committee on 15 May 2005, which was before we won, that if we were successful, I would institute a detailed review of costs. That review began in early autumn 2005, after we had won the bid. The budget for every venue, every bridge and every facility on the park has been scrutinised. The Olympic Delivery Authority’s private sector delivery partner, CLM, has unrivalled expertise in advising five Olympic cities on their plans. CLM has made a detailed study of the site and all the attendant risks inherent in a project of this magnitude and tight time scale. The site master plan has been amended to avoid potential costs in the region of £600 million. However, other costs have been judged to have increased, as I set out for the Select Committee in November, resulting in a net increase of £900 million.

We will now set a budget for the ODA, the body established to manage the delivery of all the structural and regeneration elements of the games, and I can today confirm what the budget will be. The ODA will be given a budget to cover the construction costs as a whole of up to £5.3 billion up to 2012. That comprises £3.1 billion for building the Olympic park and venues—the core Olympic costs—£1.7 billion for Olympic infrastructure and regeneration linking the park to the rest of the lower Lea valley and a £500 million allowance for programme contingency, which represents 12 per cent. of the total programme contingency that has been allowed. I am placing a summary of the ODA 2007–08 business plan in the Library today as well as details of this investment.

Those costs, as in the 2004 bid, are net of tax. The ODA will pay tax, but the cost at around £840 million will be covered in full by the Government contribution. I can assure the House that the tax treatment of the ODA will have no impact on other funders. The Government have also decided that as the funder of last resort, it is prudent that a programme contingency should be held within Government under very tight conditions. This will be drawn on should the need be demonstrated, so as to ensure that the timetable is met and that quality is maintained. The level of contingency is £2.7 billion, of which, as I have said, £500 million will form part of the base budget of the ODA. Within that overall budget, we have also allocated a figure of £600 million for wider security, which is on top of the ODA budget for site security. This £600 million figure has fluctuated as assessments have changed and will obviously be subject to continued oversight and scrutiny in the coming months and years by the relevant Cabinet Committee, the Home Secretary and the Metropolitan police.

Lastly, as we announced at the time of the bid, around £390 million will be invested in non-ODA provision, including in sport—for example, community coaches—and in the Paralympics. That figure was included in the public sector funding package, but it is not part of the ODA budget.

Let me turn now to how the budget will be funded. At the time of our Olympic bid, the lottery and the London contribution was estimated at £2.4 billion, and as I told the House on 2 February 2006, the Government will contribute a further £1 billion as part of our commitment to Olympic regeneration.

I can announce today that central Government provision will be £6 billion. This comprises the £1 billion already committed for Olympic regeneration, the funding of the tax bill, broader regeneration, infrastructure within the park, wider security and programme contingency. Without any further increase for London council tax payers beyond that already committed, or any increase in transport fares to fund the Olympics, the Mayor will over the lifetime of the Olympic programme be making a further £300 million available to help meet Olympic costs.

The lottery will make a further contribution of £675 million. This will mean a total contribution of £2.2 billion from the lottery, which is 20 per cent. of lottery income for good causes from 2005, when the Olympic lottery started, to 2012–13. In addition to the £410 million already confirmed, which will be shared according to the normal lottery shares, I propose to transfer after 2009 £425 million from the Big Lottery Fund and £250 million from the other good causes. No transfer will be made from UK Sport, which is responsible for preparing our sportsmen and women for the Beijing Olympics and the London Olympics in 2012. The decision to take a further share from the lottery has been taken only after very careful consideration, and implementation will take place only after full consultation about the implications with the lottery distributors and the other stakeholders.

The original memorandum of understanding made it clear that should we win the games, we would call on the lottery to help fund them. I believe that that principle is widely accepted. However, I am determined to ensure that this temporary diversion from the existing good causes to the Olympic good cause is done with the least possible disruption. I will continue to consult the lottery distributors about how best this can be done, but I assure the House that it is the Government’s intention that no existing lottery projects need be affected. We have also agreed with the Big Lottery Fund that resources for the voluntary sector will be protected and will, as it expects, continue to receive the £2 billion from the Big Lottery Fund between now and 2012. The decision on the lottery will be subject an affirmative resolution in both Houses in due course.

London 2012 will bring financial gain to London and, indeed, across the country. For example, land values in the Olympic park are expected to increase considerably as a result of the investment that we are making. In my view, it is only fair that the lottery good causes, having contributed to the Olympics, should share in any such windfall. The Mayor of London and I have agreed that we will rewrite our memorandum of understanding and put in place profit-sharing arrangements to enable the lottery and future regeneration needs of the local area to benefit from the returns on the investment that we are making in the Olympic park.

As I told the Culture, Media and Sport Committee, the NAO has agreed to work closely with us in scrutinising the budget from now on, and the team overseeing the project in the ODA has a world-class reputation. This makes generous funding provision for the project as a whole, of which £3.1 billion is the core Olympic cost, net of tax and contingency.

Only a fortnight ago, the International Olympic Committee said that it was “assured and impressed” by the work under way after its visit to London. The announcement that we make today means that it is full steam ahead for 2012. The London Olympics will change Britain for the better for ever. The fact of hosting the Olympic games is already changing lives and communities and building ambition. I commend that, and this statement, to the House.

end

Repsonses to the statement are available on the Hansard website

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