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Olympics antidote to the slump

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Mihir Bose | 18:45 UK time, Wednesday, 15 October 2008

If you think we are heading for the Great Depression, with sale signs going up everywhere, job losses, shops and restaurants closing, then I would suggest you take the Docklands Light Railway train to Pudding Mill Lane station and watch in wonder as the biggest construction project the country has seen for sometime takes shape.

Here in Stratford, where the Olympic Park is being constructed, Britain is not closing down but building at a pace that is quite breathtaking.

I visited the site this morning and a quick walk round showed that in the three months since I was last here the progress has been astonishing, the stadium taking shape, infrastructure work proceeding nicely and the foundations for 3,000 apartments being laid.

It shows how the Olympics presents a different perspective on the global financial crisis. If you forget the Olympics, anybody who in the present economic climate came up with the construction plan that is going on at Stratford would be on his way to see a shrink.

When the watchword is cutting expenditure the idea you build yet another sports stadium in London which may or may not be used by a football club, and thousands of apartments in a depressed housing market is extraordinary. Any person proposing such a plan is likely to be asked to go and sit down in a darkened room and take some pills.

But the London Olympics cannot be deferred. And in many ways it makes very good sense to see the Games as Britain's equivalent to American President Franklin Delano Roosevelt's New Deal to take America out of the Great Depression of the 1930s.

Talk to Olympic chiefs and many of them will tell you that the Games may help us kick-start our way out of a recession.

Just as the Hoover Dam is the symbol of American big spending of the 30s, we may look back at Stratford in years to come and say that was true of the Olympic Park. But the question is, can this spending be contained by the £9.3bn budget that was announced last year?

Sarah Brown, Chris Tomlinson, Goldie Sayers, Gordon Brown, Lord Sebastian Coe

That is a quarter of the money spent this week by the government in taking over the banks.

Olympics minister Tessa Jowell told me during the Beijing Games there is no more money for 2012 and that remains the government's position.

To make sure the figure is not exceeded, the government will juggle, a cut here and there to put some more money elsewhere. So the Olympic Village has been reduced from 4,200 apartments to 3,000, while the Media and Broadcast Centres may be temporary and some of the venues may be moved.

The challenge for the government is to make sure that the £9.3bn budget is not breached. But in trying to do that it is almost certain that the £2.7bn contingency fund that is part of the £9.3bn will be spent.

Last year, when the Treasury insisted on such a large contingency the view taken was it was too big and not all of it would be required. In the present climate the view is that the Treasury was right to be prudent.

The problem is the government and those managing the Olympic project do not come out and say it, often arguing that they cannot reveal that the contingency is being used for sensitive commercial reasons. That is rubbish. It creates confusion.

Take for instance the decision to use the £95m of the contingency to make sure work on the village starts.

When the budget was drawn up it was meant to be a public-private partnership scheme. The Lend Lease consortium would provide some equity, also take bank loans and the government would provide the rest. In the present climate that is impossible so the government has had to step in. But having taken that decision back in July, with the government also saying it was providing project finance, it was only this week the figure of £95m was confirmed, making it sound more mysterious than it should have.

For all practical purposes, the village construction is now being treated as the government would treat a hospital construction. It will spend money and book costs as they come along.

Much of the spending on the village is on infrastructure costs. The major construction costs will come into play next year or in 2010.

By then the economic climate may have improved and the government can revisit whether the public-private deal with Lend Lease can be revived.

But why not come out and say it? It would at least avoid all the unnecessary scare headlines.

The Olympics has to be held. Money has to be spent. And for the moment nearly all of it will come from the taxpayer.

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