Examination of Witnesses (Questions 140
- 159)
TUESDAY 21 NOVEMBER 2006
RT HON
TESSA JOWELL
MP AND MR
JEFF JACOBS
Q140 Mr Sanders: Did he not also
say that the 2012 programme "was so political that I think
there is going to be a huge difficulty in the completion, both
in terms of time and money"? Are you saying something completely
contrary to his view?
Tessa Jowell: I am saying I do
not agree with him, and it was not ever a point that he raised
with me while he was Chairman of the ODA in the meetings that
we had, or in the meetings of the Olympic Board. Indeed, none
of these concerns he raised at meetings of the Olympic Board.
What he was referring to there, I understand, is the frustration
he felt about the length of time it was taking to, first of all,
undertake the CPO inquiry in relation to the Olympic Park and
then the length of time that would be taken in order for the CPO
to be determined. I think that there is just simply a cultural
difference there. We, in this country, and very particularly here
in London, recognise that if you are taking people's homes and
businesses away they have to have an opportunity to make their
own representations, to take part in the process. That is what
we do. Secondly, yes, of course, the Olympic Park is being developed
in very close collaboration with five elected local authorities.
The support of those local authorities and, more particularly,
the support of the communities that they represent is absolutely
essential to the long-term sustainability and, indeed, realising
the long-term and incredibly ambitious legacy of these Games.
Q141 Philip Davies: Can I just press
you a bit further. The quote that Adrian read out was: "I
do not want my reputation for being able to deliver projects on
time and on budget ruined." On the point about cultural differences,
surely "on time and on budget" means the same whichever
culture you are talking in. Are you saying here, then, that you
disagree with that; that you are saying categorically that the
projects will be delivered on time and on budget? You are categorically
stating that today.
Tessa Jowell: I am saying that
the Olympic Games will be delivered on time. I am saying that
we are developing the Olympic Games through the Olympic Delivery
Authority within the framework that Jack Lemley himself recommended,
of two years for planning, four years for construction and one
year for test events. We are already through the first year of
the planning phase. On the "on budget", yes we are setting
a budget for the Olympic Delivery Authority that will be informed
by the best available information and, therefore, we expect the
venues and the development of the Olympic Park to come in on budget.
Q142 Chairman: Secretary of State,
perhaps we should move on to the question of the budget and the
funding. When you appeared before the Committee just over a year
ago we discussed the £2.375 billion figure for the building
of the Olympic facilities. You said to the Committee: "I
can confirm again the rigour that we are applying to the costs
in order that they are contained within that overall expenditure
limit". It has already been reported that, apparently, the
figure has risen some way above that original estimate, and in
terms of the total cost there are figures flying around of £5
billion, £8 billion—even £10 billion.
Tessa Jowell: £18 billion
you may hear tomorrow!
Q143 Chairman: Perhaps you would
like to tell us what you estimate it to be.
Tessa Jowell: Can I begin by saying
that I think you have taken evidence already from Paul Deighton,
who is the Chief Executive of the Local Organising Committee,
and having read his evidence, yes, he dealt in some detail with
the budget for the Local Organising Committee. I think it is helpful
to see this, if you like, in three parts: there is the budget
for the Local Organising Committee; there is the budget for the
development of the Olympic Park (the £2.375 billion to which
I referred at my last appearance here) and then there is the further
budget for the regeneration of the Lower Lea Valley and the cost
of linking the Olympic Park to the site that will, as part of
the Thames Gateway, be regenerated. I will focus on the costs
of the Olympic Park, if I can, and just, therefore, take you through.
Again, I am very happy, Chairman, to provide you with a written
submission to deal with any further questions you may have on
this, which will set out where the costs now are. So our starting
point was a public sector funding package of £2.375 billion.
That was a figure that was signed off across government and approved
by PriceWaterhouseCoopers, who also submitted it to a probability
assessment, which is an accountancy device with which you may
be familiar. The bid book—and I think it is, from memory,
Section 6.6.2—that we submitted to the IOC also made clear
that separately from the £2.375 billion there would be significant
contributions from the public and private sectors for regeneration.
That, as I say, is in two elements: first of all, the connection
of the Olympic Park to the Lower Lea Valley and then the costs
of funding the estimated 40,000 homes that will be built in the
Lower Lea Valley. The Memorandum of Understanding between the
Government and the Mayor of London, which was also in the bid
book, allowed for the possibility that costs would increase. Before
submitting the bid we identified £1 billion that was needed
to cover the regeneration costs—these costs to link the
Olympic Park to the Lower Lea Valley. That includes, for instance,
the undergrounding of the power lines which is currently under
way, with the demolition of some 53 electricity pylons and 450
people engaged on the site. Obviously, we are keeping these kinds
of costs under review but I would just underline that these costs
are separate from the core costs of the Olympic budget. Since
we won the bid a year ago in July there have been no increases
in the cost of venues. However, we have had to allow for increases
in costs to take account of increases in commodity prices—the
price of steel, for instance, has doubled. We have revised the
figure for construction inflation and we have also adjusted the
transport figures so that they reflect 2012 prices[1].
An additional cost of around £400 million that was not included
in the original bid is in order to fund the delivery partner,
whose overriding responsibility will be to ensure that the costs
of the Games are kept within budget and that the timescales that
we have so far been so successful in keeping to are kept[2].
In other words, to answer your question, that the Games are delivered
within time and on budget. So we are investing a further £400
million in order to secure the services of the delivery partner.
Further costs arise specifically from the need to secure greater
public funding for the Olympic Village and the international broadcast
centre. These are, at the moment, both subject to commercial negotiation
about what the level of private sector investment will ultimately
be. I am sure you will understand that these figures are, for
the time being anyway, commercial and in confidence, but I would,
of course, be very happy to let the Committee have sight of those
figures. To conclude, the overall impact of these changes is an
increase in the costs of the Olympic Park (and let me be absolutely
specific about that: we are not talking about regeneration; we
are only talking about the Olympic Park), but an increase in costs
of around £900 million, which translates therefore the £2.375
billion to £3.3 billion as the costs of the Olympic Park.
This is the account that I can give you at this stage. There are,
as you know, also further funding requirements not yet translated
into firm costs which are a matter for discussion in government.
First of all, the allowance that was made in the bid before 7
July for security is inadequate. Under the aegis of the relevant
Cabinet Committee which has responsibility for security, which
you will be aware of, discussions are taking place between my
department, the Home Office and the Metropolitan Police about
the likely costs of security. There are then two other potential
liabilities: one is discussion which is taking place within government
with the Treasury about the size of programme contingency, as
opposed to the project contingency which is included in the costing
of the venues. Again, the availability of a programme contingency
is important in a project like this, which is the largest public
building project in Europe and has to be delivered to a fixed
time, but I want to be absolutely sure that nobody draws any conclusion
that "programme contingency" translates inevitably into
"additional cost". I certainly would not want the construction
industry to get that message. Then the final point, about which
there has been quite a lot of speculation in the press, is the
question of tax liability. That is being discussed within government
and I do not think I can do better than refer the Committee to
the Chancellor's own words on the Today programme last
week that this issue is not part of the overall bill as far as
the taxpayer is concerned. That is where we are, both on the costs
of the Olympic Park and further potential funding liabilities
that arise: from VAT (to be resolved); from programme contingency
(to be resolved), and from security. So this is work in progress,
but at this point it is worth just recording, because, again,
this has been a matter of some speculation, we are way ahead in
our financial planning and budgeting for these Games. Sydney submitted
its budget for the Games two years before the Games in 1998; Beijing
waited four years after publishing its budget and last year, in
2005, signified that there would be further amendments to the
budget which have not yet been published. So that is the position
as of now, but you will understand that this is work which is
continuing, and the cost scrutiny is part of the everyday discipline
of these Olympic Games. I will certainly be very happy to come
back to the Committee at any time you wish to brief you further
on the costings.
Q144 Chairman: Thank you. Restricting
ourselves, for the moment, to the cost of the Olympic facilities,
the £2.375 billion figure, which is the one that you said
you were applying absolute rigour to ensure that it was not exceeded,
15 months later it appears that that figure has now risen by about
40%. We are still five years away. Presumably, it is unlikely
that we are going to be able to stick at that figure; it is going
to go on rising.
Tessa Jowell: I do not assume
that at all, Chairman, but the cost review which has been undertaken
with my department, with the Treasury, with the Olympic Delivery
Authority and with the support until August of this year of KPMG,
has identified these further costs. The rigour, as I say, is a
daily discipline of the Olympic Games. However, I think it is
important to remember that when the bid book was submitted in
November 2004 it was not possible to make any amendment to the
figures that the IOC had at that stage in the light of any changing
or further information. So the figures were effectively frozen
between late-October/early-November 2004 until the point at which
we won the bid in July 2005, at which point I then initiated a
fundamental review of these costs. For instance, one of the investigations
that we were unable to cost—and I think David Higgins from
the ODA gave you the position on this—was the degree of
contamination of the land. We could not undertake the necessary
tests which are now being undertaken because the land was not
in our ownership and it was also the subject of a hotly contested
land acquisition. So that is an example of something that changed
during the course of the period during which the bid book had
been submitted but we were unable to make any review of the costs.
Q145 Chairman: On the £2.375
billion figure which previously was quoted for the cost, there
was a very specific breakdown applied as to how that figure would
be met: £1.5 billion from the National Lottery, £0.625
billion from the London Council Taxpayer and £0.25 billion
from the London Development Agency. Where are you going to find
the extra £900 million which is now required?
Tessa Jowell: That is allowed
for in the Memorandum of Understanding, which was signed between
me and the Mayor. This is currently the subject of discussion
between me and colleagues in government.
Q146 Chairman: The Memorandum of
Understanding states that any overspend will be met through the
London Council Taxpayer and the National Lottery. Are you saying
that those two elements are going to have to meet this additional
cost?
Tessa Jowell: Just to remind you
of the precise words: "a sharing arrangement to be agreed
as appropriate with the Mayor of London and through seeking additional
National Lottery funding in amounts to be agreed at the time".
So as part of the continuing review of costs and the way in which
we meet further funding liabilities the formula that is set out
in the Memorandum of Understanding is, yes, certainly being considered,
but I would underline that no conclusions have yet been reached
on that. The fact that this is work in progress has no impact
on the smooth progress of this stage of planning the Olympics.
Q147 Chairman: However, it is still
your intention that that money is going to have to come out of
a combination of sources, being the National Lottery and the London
Council Taxpayer?
Tessa Jowell: I have never ruled
out more money being taken from the National Lottery, and I have
had a number of Parliamentary questions on this. However, all
this has to be within balance and sustainable. That is why we
are looking at the options within the broad framework of the agreement
of the Memorandum of Understanding. When those discussions within
government and with the Mayor are concluded then I will be very
happy to come back and tell you of the outcome.
Q148 Chairman: The Mayor has said
that he does not wish to see an increase beyond that already agreed
in the Council Tax and he does not think that any more money should
be taken from non-Olympic Lottery funds. He suggested that the
first port of call should be that the Treasury forego the 12 pence
per ticket tax take from the Lottery. Would you accept his point
there?
Tessa Jowell: Some of this discussion
that is taking place, Chairman, will take place in public—the
Mayor will make his views known; other parts of this discussion
will take place in private with the public setting out of the
conclusions, and if you do not mind I would prefer to keep my
counsel and to assure you that the discussions are taking place
within government. I am in discussion with the Mayor about this,
and what we have to have, at the end of this, is a solution which
is seen as fair, proportionate and sustainable.
Q149 Chairman: So there is a probability
that the Treasury may, in one way or another, contribute towards
the cost of the £900 million?
Tessa Jowell: The Treasury is
already contributing to the costs of the Games through the LDA,
through the Exchequer funding that has allowed us to acquire 93%
now of the land that is necessary. I am sorry that these are discussions
which are in train rather than discussions which are at this point
concluded, but these are discussions which, compared to other
Olympic Games, are taking place much earlier in the planning stage.
Q150 Alan Keen: You do not mean we
are having overruns of cost much earlier than other Olympic cities?
There are two things I am sure you will agree with: it would be
difficult to find a more laid-back Member of Parliament than I
am, nor one who is more enthusiastic about sport, but I have to
say I am beginning to get extremely anxious about this. I was
anxious about Tim Lamb's comments, which I raised this morning
with the people from the regions, that there are people running
about all over the place in the regions trying to find justification
for their involvement. He thinks the time would be better spent
on getting people involved in sport. CCPR reported to us that
the latest statistics say that hardly anyone is going to be inspired
to take part in sport from the Olympics. That is worrying. It
was not the fault of the people this morning; they have got a
job to do and I expect they do it very well, but they seemed to
be clutching at straws in answering the questions. I am concerned
about it. We do need to learn lessons from the Olympics for the
nations in the future. I know I have raised these points with
you before, and I raised them less enthusiastically before we
won the bid because we did not want to offend the IOC, but if
I can come back to the question I asked before: we must learn
for other nations in the future. Just a very simple question:
what has it go to do with the IOC, a small, self-elected body,
whether we regenerate East London or not? What has that got to
do with putting on a wonderful sporting event? To me, do you not
agree—and I know you have got to be careful in what you
say—the IOC is taking on more and more and demanding more
from nations. How on earth is it going to be possible for nations
less wealthy than we are ever to host the Olympic Games? Would
you agree we need to learn lessons for the future from the tremendous
cost that we are being involved in in this?
Tessa Jowell: Can I deal, first
of all, with your final point because it is an extraordinarily
important one? It is one of the reasons why applying control to
the costs of the Olympics, being absolutely clear that time is
not lost and, therefore, costs increase through lack of careful
planning and being very clear about the legacy—what it is
that you want the Games to achieve—are very important, not
just in order that we have a great Games in this country that
are enjoyed by people watching at home around the world but the
Olympic movement is an international movement. I think it is incumbent
on any host city in the developed world to think about the Olympic
ambitions of cities in the developing world. We have two great
cities, South Africa and Delhi. Delhi is hosting the next Commonwealth
Games and South Africa is hosting the next World Cup, and these
are cities, I am quite sure, together with cities in South America
and other African cities which have the ambition of hosting the
Olympic Games. They must be affordable and scaleable to the economies
of both cities and countries like these. That is one of the reasons
why all of us who are involved in the Olympics take the issue
of controlling costs and value for money so very seriously. The
second point is that when we bid for the Games we bid for two
reasons: first of all, that this would be a catalyst for the regeneration
of East London. However, secondly (and this is the benefit that
will extend to the whole of the country) that we would inspire
an active generation of young people to take up sport. We are
already under way with that. Quite contrary to the claim about
declining investment in community sport in the Lottery, the last
five years have seen a net increase of £350 million of investment
in community sport. You will be aware of the development of the
Schools Sport Programme; the development of competitive sport
in schools; the development of links with sports clubs; the work
that is being done by the governing bodies to identify young talent
and to bring it on; the investment in our talented athletes' scholarship
scheme and now the investment in our young Olympians, some of
whom are only 12 or 13, so that they are ready for 2012. I completely
reject this pessimistic view that it is all terrible, this is
all a waste of money; we are not going to get anything out of
it. Go into any primary classroom in this country and talk to
children there of nine, 10 or 11; they all know about the Games,
they are all looking forward to the Games; two-thirds of them
will be expecting to take part of the Games in some way and half
of them are expecting to be medal winners. We have got about three
million kids in this country who think they are going to be medal
winners. Most of them will be disappointed, but I hope that those
who are disappointed will feel that they had the opportunity to
become young sportsmen and women in a way that kind of shapes
their enthusiasm for sport for the rest of their lives.
Q151 Alan Keen: I agree with absolutely
everything you have said, and I appreciate the amount of investment
that is going into sport all the time from this Government, but
that is not the point I am making. I am saying, really, if we
are going to put on an Olympic Games it is that which is going
to inspire the kids; the regeneration of East London is not inspiring
kids round the whole of the country. Why should we have to spend
£3.5 billion regenerating and building a sports centre in
East London when we could have spent that money not just in the
regions in this country but we could have helped South Africa
and other nations? It is easier for South Africa to host football
because they have got stadia already, but the Olympics is completely
different. We have to build a new main stadium in East London
when we have already got one at Wembley which can take athletics
with temporary modifications. We have been through all of that
on this Committee—five separate inquiries. What I am saying,
Secretary of State, is that we seem to be having to follow these
rules the IOC have laid down when, in fact, we could save a massive
amount of money to be used in sport.
Tessa Jowell: I do not accept
the point that you are making. The Olympic stadium will take 80,000
people but it will not after the Olympic Games; it will be reduced
down to 20-25,000. In legacy it will be a stadium for those local
communities but it will also, technically, be capable of being
built back up to take 80,000 people so that we are never again
in the position, as a country, that we were in with Pickett's
Lock where we had to withdraw from hosting the World Athletics
Championships because we did not have a world-class athletics
stadium. That is part of the legacy. The second is: honorable
Members from all sides of the House are always raising with me
the question of 50-metre swimming pools. We will have a state-of-the-art
aquatic centre on the Olympic site that will be adapted for community
use but will also be suitable for competition. So where there
is no long-term use for the facilities they will be built as temporary
facilities and they will be taken down. For instance, it was our
original intention that the broadcast centres and the media centre
would be temporary facilities; they are much cheaper than the
costs now but they create a legacy by spending more on them now
because, in the long run, they will provide light industrial space
in the East End of London which has one of the highest unemployment
rates in the country. Round the country (I think this is your
other point) investment will also be made as a result of the Olympics
from every single region of our country. People have already volunteered
as part of the 100,000 to take part. The London Organising Committee
will be promoting the development of training camps all round
the country for the 200 visiting teams and will provide a £26,000
incentive for teams to do that. So the regeneration of the East
End is a justification, but enthusing and involving and creating
very specific opportunities for young people to take part in sport
right up and down our country is another, and we would not have
the degree of excitement were we not hosting the Games.
Q152 Alan Keen: I agree with all
of that. I am for the Olympic Games, I am one of the enthusiasts
for it, but the point I am making is how much of the increase
in costs (you probably know this already) has come because we
have got a time schedule to meet? Because we have to build a village
by the start of the Olympics we are paying a premium to businesses
we are throwing off the site. There are a lot of costs that are
being added to because we have got a time schedule to meet. What
I am trying to say is that we should learn this for the future.
I expect you to be defensive, obviously, of decisions that have
been taken.
Tessa Jowell: I am not defensive;
I feel so strongly about this.
Q153 Alan Keen: If we did not have
to have a village then the cycling would take place in Manchester.
I am all for building another cycling venue in London, but we
could build it in our own time. If the Olympics were held nationally
rather than in a city we would not have these timescales which
are forcing up the costs, because people know we have to deliver
on time, so it is costing us more.
Tessa Jowell: We are guarding
against the risks that athletes faced where they were right up
against the deadline and their venues were not finished. I go
back to the 2-4-1 template that Jack Lemley created at the beginning.
Also, I think we have had enough in this country of things being
finished in their own time. I want to be able to say to people
that the UK School Games in 2011 or 2012 will be held in the Olympic
stadium because it will be finished. One of the most impressive
things of going to Terminal Five is that they will give you the
time and the date by which things will be finished. We need that
kind of rigour, and if it takes the Olympics to provide it then,
as far as I am concerned, that is a wholly good thing.
Q154 Alan Keen: You are putting a
wonderful case forward, and I agree with 99% of it, but you still
have not answered the question: are we not incurring much heavier
costs because we have to work to the IOC's specification for the
Olympics when, really, they should make changes, should they not?
Tessa Jowell: I do not accept
that the IOC requirements involve a substantial increase in the
costs of the Games. We are building an Olympic Park that will
be a legacy to the East End of London forever, with facilities
for those communities but, also, facilities that will be available
to our world-class athletes. They do not have them at the moment
and they need them.
Chairman: We are going to come on to
talk further about Legacy, but just going back to the specific
costs, perhaps I can invite Rosemary McKenna to come in here.
Q155 Rosemary McKenna: Instead of
going over the history of the decision, can we move on to something
that we can actually do something about, and that is the issue
of VAT. What options are open? It has been said that there is
a real problem with the VAT that is going to be charged to the
ODA. What options are open to the Government?
Tessa Jowell: This is, ultimately,
obviously, a matter for the Treasury. The reason that VAT was
not included in the original bid—and this was agreed by
PriceWaterhouse and by the government departments that were party
to the bid—was that there are certain bodies, local authorities
(and, after all, the ODA was going to exercise a number of functions
of local authorities), and the Environment Agency which do not
pay VAT. If we take other Games, the Athens Olympics did not pay
VAT; the Commonwealth Games in Manchester did not pay VAT; there
were VAT concessions for the Turin Olympics and the Sydney Olympics
did not pay VAT. So there were plenty of precedents in order to
inform the initial judgment. However, this is now a matter of
discussion between my department and the Treasury. The Treasury
is responsible for taxation levels, and we will reach a conclusion
with them. As the Chancellor has said, this is not a cost to the
taxpayer.
Q156 Rosemary McKenna: So there are
options available. At what point will the Chancellor make that
decision then? Will we have to wait until much nearer the time?
Tessa Jowell: Soon.
Q157 Rosemary McKenna: Soon, but
no date is fixed.
Tessa Jowell: Unlike the opening
ceremony, by which all the venues will be completed, we do not
have a precise date by which these questions will be settled,
but we are heavily engaged with them and, I have said before,
we are way ahead of where other Olympic cities have been in addressing
these kinds of issues to anticipate precisely the risks that Alan
Keen raised.
Q158 Rosemary McKenna: Can I just
say that I think the people who were here this morning, the nations
and regions, were absolutely totally committed to making it work.
That, to me, has been a real step forward. When we took the decision
we were not absolutely sure but they certainly want to make it
work.
Tessa Jowell: Good.
Q159 Chairman: Before we leave VAT,
would you like to comment on the report that it was the structure
chosen by the Government of having two bodies that led to the
fact that VAT is chargeable, and that had there been one overall
body it would not have been necessary?
Tessa Jowell: The answer is actually
much simpler than that, which is that it was not included at the
time because the tax status of the ODA at that stage could not
be determined. We had not even legislated for it. Remember, this
is before we had won the bid, before the Olympics Bill had been
considered by Parliament and before the ODA had been established
as a non-departmental public body.
1 Footnote by witness: To reflect the impact
on inflation of re-phasing projects, some amendments have been
made to transport costs. Back
2
Footnote by witness: The c£400 million includes the
costs of the Delivery Partner along with the costs of site mobilisation
and the costs of additional staff required by the Olympic Delivery
Authority. Back
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