Examination of Witnesses (Questions 122
- 139)
WEDNESDAY 15 JANUARY 2003
RT HON
TESSA JOWELL,
MP, RT HON
RICHARD CABORN,
MP AND MR
ROBERT RAINE
Chairman
122. Secretary of State, Minister, Mr Raine,
we would like to welcome you to this meeting this morning. We
are particularly grateful that you found time to be here in your
own very limited timetable in consideration of these matters and
we are grateful to you for the material that we have had supplied
to us, which is of considerable use. May I take it, Secretary
of State, that we can take your speech yesterday as your introductory
statement?
(Tessa Jowell) I think so. This is like
a debate in continuous session!
Chairman: On that basis we will go straight
into questioning.
Mr Doran
123. Good morning. You were very careful in
your speech yesterday, Secretary of State, to distinguish between
the very powerful sporting case which you referred to and, obviously,
the financial cost. Which will weigh the most heavy in the Government's
decision?
(Tessa Jowell) Both will, to some extent, and I think
we are at the stage in this debate, and it is one of the many
reasons that we welcome the Select Committee's inquiry at this
point, of moving beyond the sense of euphoria and can-do, the
excitement that comes with the Games, which I think has often
driven these kinds of big, bold decisions in the past. What we
are trying to ensure is that if we decide to bid for the Games
we do so in full recognition of the sporting case and the opportunity
to showcase the UK and London in particular, but we do so in full
recognition of the hard choices for sport and right across all
the other areas of key Government investment and that we make
those hard choices clear before the decision is made and not after.
Your Committee has scrutinised so many of these decisions and
too often we have made these decisions and then wondered afterwards
why they cost so much and why public priorities have had to be
distorted in order to pick up a cost that should have been anticipated
at the outset. That is what we want to avoid and this is a decision
which has got to be driven by hard realism about what it would
cost in terms of cash, money, effort and Government commitment,
because the other bit is easy—the sense of feel good, national
pride and so forth.
124. If we can move on to costs, then, even
before we have put in a bid the estimates seem to be rising, and
the Arup paper and a number of witnesses yesterday seemed to think
it was very low. Yesterday in your speech you came out with a
figure of about £4.5 billion and I have heard figures even
higher than that and all the evidence shows, not just from our
own experience of Wembley, and even the Manchester Games which
were so successful but were more expensive than anticipated, that
in previous Olympics costs rose inexorably. What confidence does
the Government have that it can control these costs?
(Tessa Jowell) We are investing a lot of effort at
the moment in getting the very best estimate of costs that we
can, and I will ask Robert Raine who has been heavily engaged
in this over the last few weeks to deal with any detailed questions
that you may have. You will understand that making judgments now
about costs in 10 years' time is difficult, but we have recruited
additional help from PricewaterhouseCoopers to assist in that,
and I have to say that the exhaustive scrutiny of the costs does
mean that the extent of cost is rising. Now none of this is a
reason for saying no, but the exercise itself is important in
order to give us much greater confidence that the figure we sign
up to at the end of this process is a figure that we can be pretty
confident will face not just the country as a whole but the Government
of the day if we bid for and win the Games in 2012. However, I
would just add as a postscript that the experience of the Commonwealth
Games in Manchester, which more than doubled in cost, has given
us in relation to an event of a much smaller scale a very clear
indication of where underestimates can seriously distort the budget,
so that experience has been very much applied and we have commissioned
the Office for Government Commerce to undertake a risk assessment
which I think will cover both the assessment of the costs as well
as the ability to deliver the organisational capacity that an
event of this scale would require.
(Mr Raine) We have approached costs over the past
few weeks in two ways: first of all, by a direct examination of
some of the elements which have built up the costs put forward
in the Arup report, and we have had some dialogue with people
within Whitehall, with the other stakeholders, and those who would
be responsible for delivery about risks and contingencies around
those costs. We also, as the Secretary of State mentioned, took
some help from PricewaterhouseCoopers to look at probabilities
around those costs and they have indicated that, at this stage
of the planning, there is a very wide range in which costs could
fall a billion pounds of difference for an 80% range of confidence.
There is nothing particularly surprising about that, given the
complexity—
125. It may not be surprising, but it would
be worrying.
(Mr Raine) Obviously, as the Secretary of State has
said, what is important for Government is to identify the figure
at the high end of that range within which, with the confidence
that we need, the Games could be delivered if the event goes ahead.
126. If the Government makes the decision to
go ahead, the way in which it works with the Olympic Association,
etc, will be extremely important but it will also be extremely
important that the Government gets its own organisation right,
and we are well aware on this Committee that the Manchester Games
was in trouble until the Prime Minister took the decision to appoint
Ian McCartney and to give him special responsibility—and
I think Mr Raine came on at that time—and managed to turn
things round. That is an important lesson, I think, that seems
to have been learned. Will there be a dedicated Minister appointed
who will be responsible for seeing all of this process through,
particularly given the level of costs which we are obviously talking
about?
(Tessa Jowell) We are obviously in discussion, both
within Government and outside Government, with the key agencies
that would form the critical partnerships to deliver the bid for
the period between now and 2005 when the decision is taken and
particularly if we were to win after 2005, and we would very much
draw on your Committee's recommendation and the success of appointing
Ian McCartney in that dedicated way in doing that. We have to
settle the issue of the departmental responsibility for this within
Government. I am confident, however, that if we decide to bid,
a short time after that decision has been announced we will be
in a position to announce the way in which the organisation of
the bid will be handled. We would expect, as we have indicated,
that the Government will reach a decision at the end of this month
and that will be followed some weeks after by an announcement
of the organisation of the bid team.
(Mr Caborn) On the financing, one point that was interesting
on our visits to cities that have already run Olympics was that
in broad terms, on the cost, every one of them has doubled from
the first figure that was given, but what was more important I
think was that then creates all sorts of problems trying to raise
the additional money. It saps the strength of the organisation
like for instance, in Manchester which then diverts resources
trying to raise money, and very importantly you then start getting
bad press because it is costing more than was said. We are very
mindful, therefore, of the experience we had in Manchester which
this Committee put out very clearly indeed. It is not just about
the money but about the confidence and the culture that is around
that at the time, which can be very sapping indeed.
Chairman
127. Could I follow up on one or two of the
questions and answers that Frank Doran has initiated? Secretary
of State, you talked about the various assessments and elements
of costs but what you did not mention, and I am sure it is something
you have taken into account, is displacement cost, that is what
you could do with the money if you were not spending it on Olympic
infrastructure both within sport and in terms of other Government
expenditure—health, education, law and order, etc. I take
it that in the assessments of expenditure those displacement costs
have been taken into account?
(Tessa Jowell) Yes, certainly, and it is precisely
that point which is the dimension that we are looking at in assessing
the likely level of tourist income. Some people will come to London,
or hundreds of thousands of people will come to London for the
Olympics but there will be others who would otherwise come to
London who will stay away because of the Olympics. We estimate
that during the Olympic month an additional 600,000 people will
be in London each day because of the Games—a net increase
in August of about 300,000 per day—so yes, we are looking
at the displacement effect in relation to tourism, and I would
say in relation to this and all the figures that this is very
fast moving work and I would be very happy for my Department to
share further figures with you as the work is completed, which
will obviously be over the next week to 10 days. Secondly, we
estimate that if you were going out to buy the benefits that Olympic
development will create, aside from the levels of tourism income
and so forth, for the £2.5 billion upper range of underwriting
that we believe would be required from the public sector, if you
were simply going out to buy those 4,000 homes accommodating 16,000
athletes, 400 permanent jobs and the facilities, you would have
to spend about £300 million in order to get that gain. Now,
that would not buy you an Olympic-sized stadium but I think that
gives you a measure, if you like, of the opportunity cost, the
£2 billion which is required on Olympic infrastructure which
will not form part of the legacy that will be available to the
people of East London after the Olympics are over.
128. When you talk about upper ranges of costs,
in the material that you very kindly supplied to the Committee
you talk about 2002 costs and London 2012 as £2,614 million:
you also then go on to say that if you use London prices for comparing
the Sydney costs, then the Sydney Games would have cost £3.24
billion in Australian Government expenditure. Now yesterday when
I asked Mr Craig Reedie about how Athens was getting on he said,
obviously entirely honestly and straightforwardly, that in terms
of construction of infrastructure Athens was on course. On the
other hand, the information that you have provided for us shows
that, when you talk about upper range of costs, in Sydney costs
as estimated doubled in outturn and in Athens, which is 18 months
away from the Games, costs have already doubled. When you talk
about the upper range, therefore, I am assuming that what you
mean is the upper range now, not allowing for any increase in
costs of the kind that we have seen in the last Games and the
next Games has taken place?
(Tessa Jowell) You are right, but the counter argument
would be that had perhaps Sydney and Athens undertaken a rigorous
assessment of cost rather like we have done in revising the figures
that were devised by Arup, then perhaps the estimate of the final
cost would have been closer to the actual final cost. I will ask
Robert Raine to take you through the methodology on this but I
think there are just a couple of other important points. First
of all, Sydney costs are 80% of the costs in London—I think
that is important to bear in mind: secondly, it is difficult to
capture all the cost which is directly attributable to the Olympics.
Richard will want to say something about Athens because he has
visited Athens and discussed the development of the Olympics with
the people there, but Athens is undertaking an enormous programme
of infrastructure renewal—roads, airports, telecommunications
and so forth—and Beijing is doing the same. The total expenditure
by Beijing is likely to be in the region of £20 billion.
That is part of the transformation of the city which is driven
by the Olympics but a fraction of that cost is directly attributable
to the Olympics. It was exactly the same in Barcelona, where I
think in the final costs of the regeneration of Barcelona which
coincided with the Olympics the Olympic facilities themselves
represented about 9 or 10% of the total cost.
(Mr Raine) We are trying to estimate now that high
figure, so I think it would not be reasonable to take the figures
that the Secretary of State is quoting, the £2.5 billion
potential public subsidy, and double that as the expected outturn
based on historical experience elsewhere. In the memorandum we
did give the Sydney outturn cost at 2002 prices, and allowing
for the price comparisons the Sydney cost is around £3.2
billion at 2002 prices. That is exactly the same as the cost level
which has come up at the 60% probability level in the work done
by PricewaterhouseCoopers, so whilst we say in the memorandum
we cannot rule out all kinds of exceptional events which could
bite us over the next 10 years at the high levels which the Secretary
of State is now quoting, that is intended to guard against the
kind of cost escalation which we have seen elsewhere.
129. Could I ask you one other question before
passing on the questioning and that is this: there are two kinds
of costs or benefits being assessed. If one looks at the tables
you provide about what happened in other Olympic Games cities,
there are all kinds of figures given there about economic benefit,
financial benefit, etc, and all of those are assessments which
may or may not be accurate—and in some ways we will never
know. On the other hand, what the Chancellor of the Exchequer
would have to spend is very clear and would come out of his spending
plans and would not balance against the rest of this insofar as
there were tax revenues accruing which it is very difficult to
work out. I remember in the very worst days of the Labour Party
in opposition we used to go around saying how much we were going
to spend on increased expenditure on all kinds of worthy causes
and I remember being asked by a lady in Nelson Market Place how
we were going to pay for it and I said, "Oh, it will all
be paid for out of increased production", and the look on
her face was, "Tell me another one". Actual expenditure
is clear and the Chancellor and you, working with him, know exactly
what you would have to spend now, even though it may go up. All
the rest of it is notional and not directly balanceable against
expenditures by the Treasury. Would I be right in saying that?
(Tessa Jowell) I think we are trying, as Robert has
said—and this is why the work with PricewaterhouseCoopers
is extending the upper range and not reducing the upper end of
the range—to anticipate every eventuality which can be anticipated
in order to build those costs in now, but I would just underline
that the purpose of this exercise is in order to avoid what has
been the fate of Olympic cities which is that they have ended
up with a bill twice the size of the one they anticipated.
Mr Bryant
130. I just wanted to pursue the same kind of
area, and I should apologise that it is Welsh Questions at 11.30
so I shall have to disappear before the end of this session. You
have listed one potential benefit which is the regeneration of
East London and you have now put a figure on that which I have
not seen before if you were buying that on the open market, as
it were, of some £300 million. Yesterday we heard from the
BOA that one other cost and potential benefit would be £160
million worth of money being spent on elite sport over the next
10 years basically designed to get more Olympic medals at those
Olympics. You have been talking about the possible economic benefits
of additional tourism to London, and then there is this unquantifiable,
incontrovertible feelgood factor which comes from running an excellent
Olympic Games, although I think Atlanta probably had a feelbad
factor as well from running a rather poor Games where people could
not get to the events unless they had the Princess Royal to drive
them there. How do you assess, then, the full package of those
benefits and whether it really stacks up as opposed to spending
that money on the Health Service in London or on economic regeneration
or education?
(Tessa Jowell) Let me deal, first of all, with the
sporting benefits. A number of these were set out in the recent
strategy report that we published just before Christmas. The evidence
shows that when athletes compete in their home country they are
likely to win more medals so we could certainly expect that if
we were to host the Olympics our athletes would win more medals.
The Olympics would also come at the end of what will be a close
to 15-year period of investment subject to our Government remaining
in office, a 15-year period of investment in not just school sport
but grass root sport, talent development and ailing sport—all
of which improve medal performance. What hosting the Olympics
does not provide any hard evidence of is boosting participation
which is the second major objective of our sports strategy. We
want to see more success at the elite level, more participation
by children and more participation by the general public, and
it does not appear to have a lasting effect in relation to that.
The medal performance effect does appear to be sustained, although
at a lower level.
131. Just for that one Olympics or for subsequent
Olympics as well?
(Tessa Jowell) That is the point and again, if you
look at the performance of the Spaniards, the Australians and
the Americans, medal performance peaks when the Games are held
in the home country and is sustained but at a lower level in subsequent
Olympics, so that is something I think we could be pretty optimistic
on. But you are quite right to say that the associated feel good,
the sense of excitement that was generated by the Commonwealth
Games in Manchester in the summer, is dependent on the event being
a success. Nobody is going to get a great sense of euphoria if
the performance of the Games is being panned in the newspapers
around the world every day that they run. So the sporting benefits
are those, and this is the clinical analysis of the sporting benefits.
This is not presenting you with a gold medal and the exquisite
excitement for our athletes that winning a gold medal brings and
the excitement that their presence in schools around the country
and so forth subsequently generates, as Steve Redgrave I know
showed to you yesterday. But then there are the other benefits,
and we are looking very hard at the regeneration gain in East
London. I think it is fair to say that East London is in a slightly
different position from Beijing or Athens or even from Sydney
in that regeneration is planned for East London anyway and arguably
the Olympics would add some value to that regeneration is planned
for East London anyway and that regeneration to take place. There
is, of course, the question of what would happen to the Olympic
stadium after the event because every Olympic country shows that
there is no week in/week out market for an 80,000 capacity stadium,
so that is why we are looking at what the legacy use of a stadium
might be. The obvious one is that it would be, as with the case
with the athletic stadium in Manchester, that it would be taken
over by one of the football clubs, and those discussions are currently
taking place.
132. But the Arup report suggests that a legacy
of it going to a football club would be more expensive than a
legacy of it going to athletics?
(Mr Raine) Yes. Clearly the Arup assessment is that
the conversion costs would be greater. The issue that Government
has primarily in mind is the sustainability of the stadium long
term, and football is frankly a much more promising prospect than
athletics for that.
(Mr Caborn) I think one of the interesting features
you see as you go round the other cities is there is a price which
you have obviously focused on, and rightly, but there is also
the value and we need to try and quantify the price and the value,
and I think it depends how we approach that. Obviously the Secretary
of State has outlined some ways but if you look at Barcelona which
transformed itself, and Sydney, there was a very clear purpose
of repositioning itself in the country, and if you look at what
happened in Munich immediately after the war that was done for
a specific reason, and mostly you can say there were reasons for
doing it and to a large extent they achieved what they set out
to do. If you look at the wider value both to London and the UK
you are looking at trying to, as it were, refresh the image of
London. When I was on Trade it was amazing how people perceived
London and the UK—it was an image of Big Ben, the red bus,
and soldiers wearing busbies and what-have-you, and we were trying
to change that with the Millennium Exhibition that we took round
the world to show that Britain and the UK was actually at the
forefront of technology, and there are all sorts of things you
can quantify that you can get with the world exposure you can
get from an Olympic Games, and you can use that in many and varied
ways and to some extent how you use that is about political decision-making.
For instance, Beijing has gone in very clearly as to why it is
investing in the Olympics—it is not just the Olympics but
what you are going to get out of it.
133. You mentioned red buses. As far as I can
see at the moment the only means of getting to the Olympic site
would be the No 38 bus which is pretty full at the moment, and
route masters are being taken off over the next two to three years
so it will be difficult to get out there. There was talk in the
past of a Hackney to Chelsea line and Mrs Thatcher always said
that the people of Chelsea had no need to go to Hackney and they
certainly did not want the people of Hackney going to Chelsea!
We heard yesterday that, if London Olympics is to be a serious
proposal in the East End, London Transport will have to be managed
to an "unprecedented degree". Are you confident that
that is achievable, and what does that management to an "unprecedented
degree" mean?
(Tessa Jowell) We are of the view that transport is
not an obstacle to a bid, and I think it is very important to
be clear about that. There would be in relation to your earlier
question legacy benefits from the investment that would be made
in improving transport—a new station at Stratford and a
new station at Bromley-by-Bow in order to build the capacity to
deal with the 60,000 people an hour that the Olympics would require—and
detailed discussions again are continuing with the Department
of Transport about how traffic would be managed during that period,
but I think it is also important to be clear that we recognise
that it is possible to manage the traffic and the demand of traffic
during the Olympic period without Crossrail. As you know, discussions
about Crossrail are continuing within Government.
134. Would your assumption be that Crossrail
is part of this equation or not?
(Tessa Jowell) No. You cannot assume that Crossrail
is part of the transport infrastructure for the Olympics.
Chairman
135. So why do both the Mayor of London and
the Arup report factor Crossrail into the transport structure?
(Mr Raine) Arup considers both scenarios—with
Crossrail and without.
136. We asked them about it yesterday.
(Tessa Jowell) I think even if a decision on Crossrail
were taken in the next few weeks it would not be completed until
2011, so on the basis that all our assumptions are at the top
end of caution we cannot possibly assume that Crossrail, subject
to all those conditions, would be ready for the Olympics. Could
we assume, even if it was given the go ahead today or tomorrow,
it would be ready by 2011 in one of the biggest public transport
infrastructure projects ever? So we are not planning on the assumption
that Crossrail would be available. Were it to become available,
then that would be a bonus.
137. When you talk about the top end of caution,
the top end of caution of the opening of the Jubilee line extension
in time for the Dome was that it would be in operation at least
two years before the Dome was due to open. It opened a few days
before the Dome and today, on St John's Wood station, literally
hundreds of people were waiting on the platform because of breakdowns
in signalling on the Jubilee line, so I recognise—
(Tessa Jowell) That is precisely my point.
138. So the top end of caution is sometimes
not really the top end of caution.
(Tessa Jowell) I will go on that, wherever the top
end of caution directs!
Mr Bryant
139. Finally from me, undoubtedly this process
at the moment of the Select Committee hearing, the debate in the
Commons yesterday and obviously the very substantial work that
the Department has quite evidently done with the Treasury throughout
the whole process and so on seems a good process and much more
reliable than any other process we have seen before but in the
end, if we decide to go for it, the question that most sporting
organisations and people in Britain will be asking is, "Are
we going to do this with a full heart?", because as somebody
once said, "Equivocation will undo us"?
(Tessa Jowell) I have made that perfectly clear. The
reason we are going through this rigorous exercise at this stage
is to be as clear as we possibly can be, 10 years out, about the
consequences. I have said that all the evidence shows that transport
would not be an obstacle. If we decide we are going to go for
it we will go hell for leather to win and all the commitment of
Government will be deployed, but we are at the moment at the stage
of examining the level of public sector underwriting of the costs
of this and the very heavy choices and trade-offs that are involved
in that.
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