Rising Olympic costs slammed as catastrophic

· Entire £2.7bn contingency fund is to be used up
· Final London 2012 bill will be three times bid figure

The most pessimistic estimates of the final bill for the London 2012 Olympics were vindicated yesterday when the most senior civil servant involved on the project admitted that the entire £2.7bn contingency fund for the project would probably be spent.
The admission to MPs by Jonathan Stephens, permanent secretary to the Department for Culture, Media and Sport, contradicts repeated assertions from government and the Olympic Delivery Authority that costs had not risen in real terms since the bid was submitted in 2004.

The admission means the final cost is likely to be at least £9.3bn, more than double the figure given in London's bid book, a disparity which the Labour MP Don Touhig described as "the most catastrophic piece of financial mismanagement in the history of the world".
Until yesterday the ODA and DCMS had insisted that the intention was not to spend the contingency money but, at a hearing of the public accounts committee at Westminster yesterday, Stephens conceded that it might all be spent.

"The only safe assumption is to expect all of it to be spent," he said. "Obviously we are all working to ensure that less is spent but on a project of this size we might expect risks will materialise, and as they do contingency will be transferred to the ODA. We are trying to advance the timetable to deal with cost pressures but it is realistic to expect a significant amount, if not all, of the contingency to be spent."

The admission will fuel suspicions that the original budget was set deliberately low to attract cabinet approval for a bid and undermines repeated assertions from the ODA that costs have not risen.

The original budget, compiled in 2004, put construction costs at £2.375bn, with a further £1bn set aside for regeneration costs and another £700m coming from the private sector. In March this year the Olympics minister, Tessa Jowell, told parliament that the budget had risen to £9.3bn, an increase of more than £5bn, of which almost half was the "potential additional programme contingency".

Until now the Olympic officials have insisted that the new construction budget was broadly comparable to the 2004 figures once VAT and compound inflation to 2012 prices was taken into account. The likelihood that all contingency will be used explodes that argument.

Stephen's evidence came during an often heated appearance in front of the influential Commons committee, which was questioning Olympic officials for the first time since the revised budget was published.

Stephens and David Higgins, the ODA chief executive, came under sustained criticism for the disparity between the two budgets, with Edward Leigh, the Conservative chairman, telling them that he had little confidence in their ability to control costs as the Games approached.

"What worries me is that judging by your record so far I have no confidence in your ability to plan ahead. As the Games approach you are going to have to throw money at it," he said.

Stephens denied that this was the case. Asked repeatedly why the original budget was so inaccurate and had even failed to take into account government guidelines on budgeting for major projects, he said that inaccuracies were inevitable in a project of this scale and complexity, that the original budget had been signed off across government and had been based on expert independent advice.

The committee seized on an increase in management costs from £16m to £570m between the two bids, with the Conservative David Curry describing it as "more Harry Potter than Accountancy Age".

A reduction in the budgeted private-sector contribution from £738m to £165m also drew criticism: "It is staggering that an accounting officer could include an estimate for £738m which he has been warned is not based on any sort of accurate information. It is an appalling abrogation of your responsibilities as an accounting officer," said Leigh.

Higgins insisted the ODA was working to control costs, rejecting the charge from Austin Mitchell that "the construction industry has you by the short Olympic rings". At the end of the session Leigh warned Stephens and Higgins that they could expect a highly critical report from the committee.

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