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Last Updated: Friday, 23 February 2007, 22:19 GMT
Mihir Bose view
BBC sports editor Mihir Bose gets inside sport
By Mihir Bose
BBC sports news editor

The BBC can reveal that the cost of the London 2012 Olympics, which was estimated at 2.35 billion when London bid for the Games, has now risen to an estimate of 9bn.

I understand that there is a huge argument going among Whitehall departments about the figures, with the Department of Culture, Media and Sport and the Treasury clashing both about the costs and who will pay them.

The Olympic site in east London
The Olympic site in east London needs decontamination
When the London bid book was prepared, the section on the cost of building the venues and getting that part of east London ready for the Games was on a page showing the Chancellor Gordon Brown holding the red budget box.

The impression created was that all the figures were under the tight control of this iron chancellor.

But now it is the Treasury's insistence on how the Budget should be drawn up that has considerably added to the costs.

The original cost of 2.35bn has increased because of a variety of factors.

They include a rise in commodity prices, adjustments to transport figures to reflect 2012 prices, and a revised estimate for inflation on construction costs.

There has also been the additional cost of security at the proposed Stratford site. It could be argued that, given the bid prices were set in 2004, they were always bound go up.

However, the new element is that the Treasury is insisting that there should be a 60% contingency to be added to the construction cost.

London suffered a horrific terrorist attack the day after it won the Games and estimates of how much security may cost have risen to 900m

This figure has been resisted both by the Mayor of London, Ken Livingstone, and also the DCMS.

Both of them would like a much lower contingency and their view appears to have been supported by CLM, the delivery partners who have prepared a report on the Olympics project which was presented to ministers this week.

What has also added to the costs is the realisation that the land in the east end of London chosen for the site needs decontamination and major remedial work before it can be fit for the Games.

This was not part of the 2.35bn stated as cost for preparing the Olympic Park for the Games.

The CLM report makes it clear that the site chosen at the specific insistence of the Mayor, who sees the Games as a splendid vehicle for regeneration of that deprived part of London, is very difficult land which needs a lot of work.

This regeneration costs is now estimated at 1.8bn.

In addition to this there is the cost of security. London suffered a horrific terrorist attack the day after it won the Games and estimates of how much security may cost have risen to 900m, and could go even higher.

To top it all, the Treasury has decided that the Olympic Development Authority will have to pay VAT.

Now, while this VAT is in effect paid to the Treasury and that means one arm of government is paying another, money initially still has to be found before it is reclaimed.

There is also a big debate as to how the costs will be met.

The Treasury would like to take the shortfall from the lottery while the DCMS would prefer it to be top-sliced from the various departments which will benefit from the Games.

The costs debate has been going on for over six months, but with the inspectors of the International Olympic committee visiting London next week, the issue needs to be resolved and resolved soon.


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