The great Olympic stimulus

 
GB's Sophie Hosking and Katherine Copeland celebrate winning gold. Just how much did the economy benefit from the Olympics?

This government is usually quite sceptical of the idea that you can borrow and spend your way to faster growth. But not, apparently, when it comes to the Olympics.

Today's official report on the economic benefits from the 2012 Games goes out of its way to show that the Olympics more than paid for itself in new business for UK companies - and, presumably, higher tax revenues for the Treasury.

In fact, if you were just looking at the headline findings of this report you might well conclude that the government should be going in for a lot more "grand projects". Like the Olympics, they might add to public borrowing in the short term, but help "catalyse" a long-term boost in UK investment and growth.

It sounds positively Keynesian. Except, I don't think even the most fervent supporter of Keynesian-style stimulus plans would recommend doing anything based on the headline findings of this report - let alone the details.

As I said on the Today programme this morning, it would be rude to call the benefit numbers flakey. But most economists would say they were deeply speculative, at best.

Broad definition

The point is not that the Games didn't bring economic benefits - it would be hard for something that cost roughly £9bn not to have any economic benefits. And of course they brought lots of more intangible benefits, for all of us.

But remember the big £9.9bn figure we got today is supposed to be the extra business for UK firms from 2012, in addition to the jobs and income that were directly generated by building the stadium and other investments to prepare for the games.

To make even a rough guess of the extra business generated, you need to have a sense of what would have happened anyway; what academics would call "the counterfactual".

They never really provide that in today's glossy report. The implicit assumption seems to be that - had it not been for the Olympics - that £9bn would simply not have been spent.

Would that have meant £9bn less in government borrowing over the period leading up to 2012? The report does not say. Nor does it offer the chancellor's view on that alternative future.

We do have some hard numbers, here, on the business that UK companies have won to help with Rio Olympics, which add up to about £120m. In total, the report says that UK contracts for other international sporting events add up to £1.5bn.

More problematic is the £2.5bn of "additional" inward investment into the UK since the Games.

This turns out to include, among other things, any investment announced at Department for Business events that took place in and around the Olympics - or any investment made since then, by any company that attended one of these events.

As Vince Cable conceded on the Today programme this morning, that is a pretty broad definition.

We know that companies with big deals in the offing will have been encouraged to "save them up" for these set piece occasions. They always are.

We also know - or at least have to hope - that many of the very big companies that were all encouraged to come to these conferences would have invested in the UK anyway. That, presumably, is why they came.

'What luck'

But at least those "extra" investments actually took place, (even if they include a Westfield shopping centre in Croydon.) The "additional sales" which account for nearly two-thirds of the £9.9bn in total benefits is not based on any actual sales numbers at all.

It is based, rather, on the assumed effect of all the extra engagement with companies that UKTI and the Department for Business undertook as part of its Olympics business strategy.

It's quite possible that these efforts did generate extra sales for companies. The department has carried out surveys which suggest it has done this in the past.

The point is that all these companies would have been doing something else if they had not been doing all these "Olympic-inspired" things. And so would all those civil servants.

Again, it's not that the Olympics won't have generated a payoff for UK plc - in addition to all that happiness and general raising of our national self-esteem. But if you're going to put numbers on it, I suspect most economists would say they need to be a lot more rigorous than this.

Still, you can't help thinking how happy the authors of this research must have been, that the total benefits happened to come in so close to a chunky number like £10bn - and just above what the games are said to have cost. What luck.

 
Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    0

    Comment number 158.

    16.Knut Largerson
    "Maybe 30 Million people enjoyed it, and the cost £10 Billion overall or £300 per person.
    I can live with that. "

    What about the other 30million who didn't enjoy it, but had to pay for it anyway? So it's more like £150 per person. I can't live with that. Glad you enjoyed it though.

  • rate this
    0

    Comment number 157.

    150 up to snuff

    The vast bulk of Stephs scaremongering has been proven to be just that . As with many of her colleagues , Stephs reputation has been serverely damaged by constantly crying wolf .

    In truth any fool could point out the flaws in the olympic data .
    But when steph criticises it , one feels its more out of habit than journalistic reason .

  • rate this
    0

    Comment number 156.

    Some simple arithmetic, for the happy clappy brigade who believe anything...

    the £9.9bn in extra business is sales, not profit.

    So the highly suspect £10bn cost, minus a generous 10% margin on £9.9bn sales is around

    £10bn - 990m = around a £9bn loss, ignoring stuff like Corporation Tax on the profits.

    Over and above the inconvenient fact, total Olympic spend in reality being £24bn.

  • rate this
    0

    Comment number 155.

    As the fiery flame of the olympics dissipates to a warm glow in my heart, a new sense of continuation, of safety, of thanks, envelopes my soul as a Royal child is brought forth. I'm so lucky, we're so lucky!

  • rate this
    0

    Comment number 154.

    Great article.

  • rate this
    0

    Comment number 153.

    So long as local swimming pools (and libraries) are being closed and sports fields being built over how can this be 'good' news? Obviously there are some success stories and the eternal optimist will hail that as 'proof'. It isn't. Until we actually see the colour of this money it's just a projection of future earnings. When it filters through to local councils to stop closures then we will know.

  • rate this
    -1

    Comment number 152.

    Are we saying that the opening ceremony including our NHS tribute was for nothing?

  • rate this
    +1

    Comment number 151.

    I have personally participated in bringing about part of the Olympic Legacy we are shortly to start building a new water sports hub at Marlow Rowing Club which will cater for rowing, open water swimming, triathlon and canoeing. We have nearly raised all the money and we are enjoying a surge in membership applications from the community who wish to participate in sport. You can contribute online.

  • rate this
    0

    Comment number 150.

    110mattmatt81
    Steph there are at least two more important good news stories for you to undermine
    ~
    111VictorsDoubleSussex
    I am fed up with this constant boring talking down of every single bit of positive news
    ~
    # # #
    So whether its is true or correct or not is immaterial, we should all believe & cheer?

  • rate this
    0

    Comment number 149.

    This is what all governments do! They always have done and always will do.

    If governments didn't massage data then, yes, that would be news.

  • rate this
    0

    Comment number 148.

    It's inherently difficult to do these calculations.

    How do you account for infrastructural works (e.g. replacing Victorian water pipes) that might not been carried out if the Olympics was not in London? Also, how much effect will all these have on the economy?

    There should be a range of estimations but of course the govt wish to use the biggest numbers to appear "accountable" though!

  • rate this
    +1

    Comment number 147.

    Are we not taking the report too seriously?

  • rate this
    0

    Comment number 146.

    I was heartened by the news that the London olympics was profitable.
    The (at least) two miracles involved in this report leads me to conclude that Pope Francis should throw his zucchetto into the ring and go for Coe beatification.

  • rate this
    +2

    Comment number 145.

    Quite obviously a report which had an end view to be propagated and invented the numbers or selected them to fit its agenda. Standard procedure, for costing big political projects, like HS2. Invent benefits, invent a value, magic, it is worth wasting tax money on so politicians can grandstand to and favour their mates.

  • Comment number 144.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 143.

    I hope someone can see that the London 2012 made a loss: a total of £11 billion spent in the game and then £9.9 billion in return? That is at least £1 billion loss. Also if you read the headline about making £40 billions in year 2020 - that is at least 7 years away. Dividing the profit (assume nothing change), it'll still be merely £5 billion a year - less than 1% on both GDP and total debts.

  • rate this
    +1

    Comment number 142.

    The original budget for the Olympics was £2.35 billion, 4 revised costings later seen that figure rise to over £9 billion. The truth is that the Olympics was £6 billion over budget. Adding on the massive cost of using the Army to fill seats and provide security and that cost rockets. The people of London in particular will still be paying for these Games for many more years.

  • rate this
    +1

    Comment number 141.

    Seriously Stephanie?????

    Below I show a list governments who have issued accurate financial data:

  • rate this
    +1

    Comment number 140.

    Fact is 10 billion out of tax payers cash was spent on the games. If this so called 9.9 billion is correct then maybe 2 billion returned in cash. Overall 8 billion loss. At what real cost reduced benefits, increased charges for Universities, NHS collapsing and reduced funding to councils to name a few. If I acted like that I will have my house repossesed.

  • rate this
    0

    Comment number 139.

    Manufacturing, the Big Fat Elephant absent from the room......
    Anyhow, I thought their made up figures sounded quite convincing.

 

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