Evanomics

Real cost of 2012?

• Evan Davis | Notes on Real Life |
• 15 Mar 07, 09:05 PM

Just after London was awarded the 2012 Games, there was a nice letter to the Today programme asking if we could allot a couple of hours a week to negative whingeing about the Olympics, so that we could at least enjoy the honour of having the games the rest of the time.

I find myself agreeing with that sentiment, as I listen to the downbeat media commentary around.

The truth about the budget of the London Games is that it's nothing like as bad as it looks.

It is simply not correct to say the cost of the games has gone up "yet again".

It is not correct to say the costs of the games are "out of control".

It is not correct to say the cost of the games has quadrupled or tripled.

It is even incorrect to say the cost of £9.3bn is the cost of the Olympics at all.

So what is correct?

(I apologise if the next few paragraphs have more figures than you really want, but I think it is important to make clear where the costs were, and where they are.)

The costs everyone talks about are those for building the facilities and re-developing the games site. This is said to have quadrupled from 2.4 billion to 9.3 billion.

However, the 2.4 billion figure is wrong, as is the 9.3 billion figure.

Always added to that original 2.4 billion was an extra billion pounds of spending on local regeneration. So the 2.4 should be counted as 3.4.

And that original budget of 3.4 billion has now risen to 7.5 billion, not 9.3.

The 9.3 includes stuff - like security, VAT and some extra bits - that were always accounted for separately from the 3.4 billion.

So in other words, the original 3.4 billion has in fact risen by 120%. Or, a good journalistic way of saying a cost has risen by 120% would be to say it has "more than doubled".

That might sound like costs are "out of control", but when you take into account that 2.7 billion of that 7.5 billion is a contingency for unforeseen costs, you realise that we can't say costs are out of control yet. We don't know whether they'll go out of control, we are simply making sure we can cope if they do.

It is true that the full cost of the construction and security and some other aspects of the games is £9.3 bn, but that includes £840m of VAT payments which goes back to the government, and hence should be disregarded.

However, the real problem with the casual use of phrases like "the cost of the Olympics" is that it overlooks an important fact: these big numbers are not the cost of the Olympics at all, but cost of constructing of a town in a desolate East London site of 2.5 square kilometres; a town which will be temporarily used by the 2012 games.

To disregard the value of the site at the end of the two weeks sports festival is to disregard the whole point of having the games in London at all. If I buy a £100,000 house to host a party, I'd be a bit silly to say the party cost me £100,000. Because I've got a house at the end of it.

The site will not be owned by the taxpayer. Developers will sell portions of the housing and the other facilities (the developers are spending several billion of their own on top of the 7.5 billion) but there should be some value to the taxpayer at the end of the process.

As it happens, the budget for running the games itself - the two week sports festival - is £2bn. That has not changed and is not included in the 9.3 billion. No-one really talks about this two billion as it will be financed by private sponsorship.

I am sorry if all this accounting is a little tedious. I'm sure we will have plenty to complain about as the games progress to 2012. it would be surprising if we didn't, given that it's such a large project.

(And there are already aspects to moan about - the new security budget of £600m in the 9.3 billion for example has risen from the original bid, and yet security was hardly an unforeseen need back in 2005.)

But let's not exaggerate how bad it is.

• Permalink
• Comments (101)