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2012 finances in good shape but still under pressure

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David Bond | 19:37 UK time, Monday, 14 February 2011

The message from Olympics Minister Hugh Robertson on Monday was that the London 2012 Games are still on track and on budget.

And on the whole they are - 79% of the venues and major construction projects on the Olympic Park are complete, a remarkable achievement given Britain's track record in the past with grand sporting projects.

Of the £2.98bn public sector funding package for the Games, £587m of contingency remains unspent. With much of the construction risk now subsiding as venues are completed, ministers and Olympic organisers are hopeful the need to call on that money will also recede. But that does not mean that all the risks have been eliminated.

In fact, two areas which are becoming more risky are security and the cost of actually staging the Games.

Although a review of security carried out before Christmas by the Home Office concluded the amount needed for securing the Games had reduced by £125m from £600m to £475m, the actual security budget has gone up.

That is because a new tranche of security funding of £282m has been allocated to the London Organising Committee for the Games (Locog). This is to secure the venues when the Games are on.

If you add that to another pot of security money - the £238m of unspent contingency - then the total amount of public money set aside for keeping the public, athletes and officials safe is just short of £1bn (£5m short, to be precise).

The second change signalled in the latest quarterly report from the government and the Olympic Delivery Authority is an increase in the amount of money being given to Locog to organise the Games.

Armed police officersSecurity is a crucial - and costly - factor in planning for the 2012 Olympics. Photo: Press Association

To go back to the very start of the project, it was always envisaged that, while the construction of the Olympic Park at Stratford would be publicly funded, the costs of staging the Games would come from the private sector.

With a pot of £2bn, the job of raising money from sponsors, television rights and merchandising has gone well.

With tickets due to go on sale on 15 March, we will soon get a clearer idea of public appetite for the Olympics and how much of the estimated £500m in revenue from tickets will be raised.

The countdown to that starts with the announcement of the Games timetable on Tuesday. But what was announced on Monday was an extra allocation of just over £500m for Locog out of the total public sector funding package of £9.298bn.

This includes the £282m for security outlined above but also £95m to pay for half the costs of staging the Paralympics, £67m for operating the Olympic Park and £63m towards other operational activities.

As the ultimate guarantor of Locog, the government knew it was ultimately on the hook if the costs of staging the Games shot up in the last 18 months.

That is why, at a time when every other part of the public sector is feeling the pinch, Locog has suddenly being given extra money from the taxpayer and lottery player.

The government has told Locog that if there is any surplus after the Games, then it will expect funds to flow back to the public purse.

But Locog stresses this is mostly money it has been given to cover new roles it has been handed as the fine planning of the Games becomes more detailed. In simple terms, it has been given an expanded brief.

It is also true that there is no overall increase in the anticipated final cost of the London Olympics or the public sector funding requirement.

What all this signals is a clear shift from the big build to the big build-up as the Games get closer and closer.

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