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For the want of a walnut whip?

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Mihir Bose | 13:29 UK time, Thursday, 19 June 2008

The statement from London Mayor Boris Johnson on Thursday's Today Programme regarding Olympic costs is hugely significant.

"There is a dispute at the moment between the GLA, and the mayoralty, and the Government about who is up for the overruns in so far as they may or may not occur," he said.

This the first time someone from inside the Olympic camp has admitted to any such dispute.

It has added significance given that it comes only 24 hours after a report by Johnson's Olympic adviser David Ross, which highlighted areas of concerns indicating how and why costs could rise.

The report's main areas of concern are the construction of the Olympic Village and security costs.

Ross says there may have to be significant additional public sector funding with regard to the village while on security, he says: "It is also difficult to have confidence in current costs estimates in the absence of a full costed security plan."

In the past, the Government's answer has always been there is no question of the budget of £9.325bn being breached because of a £2.7bn contingency fund.

But of that £2.7bn, only £1bn remains unallocated and Ross is not certain this will be adequate.

"Given the difficult economic reality we now face it is not possible to be certain the level of programme contingency remaining will be adequate," he said.

But if more than £9.325bn is required, where will it come from?

This question of any possible cost overruns has dogged the London Games ever since the bid was made.

Back in 2003, when the bid was finally launched, the Government promised the International Olympic Committee that it would guarantee the London Olympics.

London Mayor Boris Johnson (l) and Prime Minister Gordon Brown (r) meet Dennis Oswald of the IOC

As the IOC Evaluation Report on London said: "The UK Government has guaranteed it would act as the ultimate financial guarantor to cover any shortfall from the Games."

However, in agreeing to this decision, Gordon Brown, the then Chancellor who was always very sceptical about bidding for the Games, had a separate agreement with former London Mayor Ken Livingston.

This memorandum of understanding made it clear that if there were cost overruns the Government and the Mayor would meet to decide who foots the bill.

Livingstone always insisted this would not mean any increased burden on council tax payers beyond £20 a year, 38p a week or the price of a walnut whip, as he famously put it.

In 2007, when the budget was finally set at £9.325bn, there was a revised agreement.

Livingstone agreed to provide another £300m but this money would not come from increases in council taxes or fares.

The money is meant to come from the London Development Authority.

This would seem to suggest that whatever happens to the Olympic budget, Londoners need have no fears.

But everyone accepts that if costs rise beyond £9.325bn we are in an entirely new ball game, and it is difficult to see how some burden will not be passed on to London residents in some form or another.

Before we get to that stage, both sides are positioning themselves.

Indeed, I understand there has been much debate and no little disagreement as to when the Mayor should pay the additional £300m and what conditions he should impose before the payment is made.

Ross's advice is that the Johnson should use this to make sure the government funds the legacy commitments it has made and that the Mayor should also insist that if the entire contingency is not used up, then some of the £300m comes back to his office.

The Government vigorously disputes this, arguing that the £300m cannot be reimbursed.

The issue of legacy, which is a big concern for Johnson, provides another problem as his predecessor said the GLA would contribute £10m a year to the running costs of the Olympic Park after 2012.

"This may not be sufficient to meet the likely costs," added Ross. "Common sense would dictate that given the lack of progress in settling the legacy plans any current estimates of future legacy revenue funding requirements are unlikely to be robust."

The frightening vision is of the Olympic Park being built, used for the Games and then not being commercially viable, so remaining unused.

Ross clearly believes the Mayor should use the money leverage he has with the Government to make sure this does not happen.

Nobody can be certain that there will be no cost overruns and the Ross report has highlighted the areas of concern.

The behind the scenes argument about who pays if the budget is blown has been going on for some time, it has only now become public.

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