Cost-Benefit Analysis - Olympics

Leading article: A winning performance
Published: 11 December 2007
Tessa Jowell, the Olympics minister, is clearly trying for a gold medal. The 2012 London Olympics are on budget and on schedule, she told Parliament yesterday. Unfortunately the only sport for which she would qualify is that of goal-post moving.

Those with long memories may recall that "being on budget" back in 2003, when the consultants Arup first costed the games, involved laying out a mere £1.8bn. Within a few months Ms Jowell had revised that to £2.4bn, including an apparently generous 50 per cent contingency fund. The UK record remained at that level for a full two years until 2006, when a new one of £3.3bn was set, again by that Olympic financing veteran Ms Jowell. Now it is going to cost us, including contingency, security and tax, some £9.3bn.

Clearly Ms Jowell is going for a world record here. The Olympics are on budget only in the sense that they seem not to have gone up again since March when, after a "thorough assessment of all potential risks", she first announced the £9.3bn total.

The Olympics will be good for London and for the entire nation. But what is not good is this unedifying inability to control the costs. It is a household truism that whenever you get the builders in it costs twice as much and takes twice as long as the estimate sets out. Yet even by that yardstick, this is an overspend on the overspend.

Things are unlikely to get better. This will be Europe's largest public construction development initiative, which includes rebuilding large sections of run-down east London in disused industrial sites surrounded by some of Britain's poorest neighbourhoods. The House of Commons public accounts committee has suggested that ministers have "over-planned" and "grossly underestimated" foreseeable costs. What was good about Ms Jowell's announcement yesterday was that it sets out the most detailed breakdown of expected costs to date, with the promise of updates every six months. Yet that is not enough. If we are to keep on top of costs, ministers must disclose more budget information, including a breakdown of contingency spending and monthly cash flows.

Ms Jowell was asked yesterday whether it was likely any of the £2bn Olympic contingency fund would remain unspent. She had "grounds for optimism"" on that she said, even as the BBC was reporting the existence of a confidential report to ministers which suggests there is a 20 per cent chance the budget will rise yet again. The sad likelihood is that this is one Olympic sport in which the record will be broken again and again – and all before the games have ever begun.