Examination of Witnesses (Questions 160
- 179)
TUESDAY 21 NOVEMBER 2006
RT HON
TESSA JOWELL
MP AND MR
JEFF JACOBS
Q160 Chairman: Going back to your
comment that you are applying rigour to the £2.375 billion
estimate of the cost, surely the oversight of the necessity to
pay VAT is not very rigorous.
Tessa Jowell: It was not an oversight.
Q161 Chairman: It was never quoted
at any time.
Tessa Jowell: It was a judgment
that no decision, at that stage, could be made about VAT. So,
as we made clear in the bid itself, the bid was submitted net
of the cost of VAT. At that stage, as may well continue to be
the case, VAT was not thought to be likely to be payable. This
is an issue that we will resolve but it is an issue that will
not have an impact, as the Chancellor has said, on the taxpayer.
It is much more of an administrative matter than it is a substantive
funding matter, unlike some of the other issues that we are continuing
to address.
Q162 Chairman: The Chancellor saying
it is not going to have an impact on the taxpayer is, obviously,
reassuring, but if it is the case that VAT is going to have to
be paid it obviously has to come from somewhere.
Tessa Jowell: If it has to be
paid by the ODA, I think what the Chancellor has made clear is
that he is not looking to the Olympics to provide a VAT windfall
for the Treasury. We have to continue to discuss this and move
to a resolution of it in government, but what I can absolutely
assure the Committee is that it is not a matter which is having
an impact on the planning and the delivery of the Games at this
stage.
Chairman: Thank you.
Q163 Rosemary McKenna: Can I talk
now about the regeneration and remediation work, particularly
regeneration. It has been suggested that the Government bring
forward the investment planned for the area and begin the investment
now, and that should make a more efficient use of public money.
Do you think that is right, and at whose disposal would the expenditure
be?
Tessa Jowell: This is, obviously,
a matter for the Secretary of State at the Department of Communities
and Local Government, who leads on all the matters to do with
the regeneration of the Thames Gateway, of which the Lower Lea
Valley is part. That is why, in a sense, I have expressed the
development of the Olympic Park independently of the regeneration
of the Lower Lea Valley. As you will all know, the Olympic team
visited Barcelona last week in order to see there, first hand,
the scale of the prize that hosting the Olympic Games 14 years
ago has provided for the city. The regeneration has been very
bold and very ambitious; it has a very high level of public support
and I think by general consent has transformed the city; they
have seven-times more tourists and the economy is growing. The
interesting analogy is that the population of Barcelona is broadly
in line with the population of the five Olympic boroughs. As we
were arriving, one of the people with us who has been involved
in the regeneration of Barcelona from the outset said that actually—and
it is almost impossible to imagine now—the Stratford site
in East London looks like the Barcelona site looked before the
regeneration began.
Q164 Rosemary McKenna: I know that
because I have been there before and since, and it is fantastic.
I just feel that we need to make sure that the money begins to
be spent—not so much that they cannot actually spend the
money, but that the local authorities know that they can begin
the investment now, so that they really do benefit and it is ready.
Is that a real possibility? Do you think we will be able to do
that?
Tessa Jowell: That is certainly
the intention, and the timescales for the regeneration in relation
to the rest of the Thames Gateway will obviously be matters for
the Secretary of State to decide.
Q165 Rosemary McKenna: The local
authorities are working together. I remember in Barcelona this
great tension between the Mayor of Barcelona and the President
of the autonomous region of Catalonia, but here at least they
all seem to be working together.
Tessa Jowell: Yes, I think the
working relationships are very good, as they are between government,
my department, the Mayor and the London Organising Committee.
Maintaining that is extremely important for the smooth running
of the Games.
Q166 Rosemary McKenna: Are you confident
that remediation work can be carried out under the existing budgets?
Tessa Jowell: Yes, the estimated
cost of remediation is £220 million. It is very slightly
less than was originally budgeted for. The preparatory work has
started, it is scheduled to finish early in 2009, but most of
it will be completed by the summer of 2008, including the critical
areas of the aquatic centre and the stadium.
Q167 Chairman: When is the site survey
going to be completed?
Mr Jacobs: About half of it has
been carried out so far. I cannot give you a precise date for
when it is all going to be completed but we can provide that to
you (see p Ev 73).
Q168 Chairman: If only half of it
has been completed, for half of the site you do not actually know
what is underneath there at all.
Tessa Jowell: The advice that
I have had on this is that what has been discovered so far is
in line with the expectations of the engineers who are carrying
out the work. This is obviously part of the work that the delivery
partner is overseeing.
Q169 Chairman: Returning to our friend
Mr Lemley, how would you respond to his comment: "not a spoonful
of dirt has been turned all summer. We have not yet touched the
site and this is a huge problem. What if there is unexploded ordnance
from the war? We have to identify what is in the ground to get
the programme moving"?
Mr Jacobs: The answer to that
is very much what the Secretary of State has already said, that
Jack Lemley's own proposals involved two years of planning, of
which the first year has been completed, and the planning work
is continuing. The site survey work is being undertaken now; nothing
has been turned up so far which has not been in line with engineers'
expectations, with a very large, professional team being employed
to analyse this work. Obviously, as it moves forward, the delivery
partner, CLM, will look in more detail at what they are coming
up with. When we get to the end of the 90-day review period that
the delivery partner is currently in the middle of we will have
a better idea still.
Tessa Jowell: The Committee might
like to visit the site and see the eight drilling rigs which are
on site doing this. I would just add to that the assurance to
the Committee that the remediation work is not having any detrimental
impact on the milestones against which the delivery plan is being
judged.
Q170 Chairman: Is the remediation
work and site survey proceeding in line with the timetable?
Tessa Jowell: I have no reason
to believe it is not.
Q171 Janet Anderson: Secretary of
State, you referred to contingency provision earlier, and you
did say that you felt very strongly this should not be translated
into additional cost, which I think is a very sensible approach.
You may know that the Mayor of London said to the London Assembly
earlier this month that he was opposed to contingencies in principle
as he believed that they encourage contractors to depart from
agreed prices for work. I wonder if, perhaps, you could just tell
us a bit more. There is a figure of £955 million which covers
security, elite sport contingencies and inflation. Are you able
to say how much of that is actually for contingency as a percentage,
and whether you are happy with that and confident it will cover
any unforeseen expenses?
Tessa Jowell: The range of contingency
in each part of the project was judged in light of the likely
level of contingency. Each part was judged, and the range of contingency
is between 20% and 23%. That is project contingency, as part of
the core costs of the Park. The proposition which is now being
discussed is for what is called a programme contingency, which
would not be allocated to any particular part of the project.
There are different views about, first of all, is a programme
contingency necessary. I think the broad consensus is that it
is; it was certainly the view of KPMG that it is. It was not,
however, part of the original advice that we had in drawing up
the original bid. The level at which the contingency is set, again,
is something where different experts have different views—anything
between 20% and 60%. That, at the moment, is a matter which is
the subject of discussion with the Treasury. I hope, also, we
can take advice on that from the delivery partner in light of
the scrutiny that they are currently carrying out, but it is absolutely
essential to see the various elements of these costs for what
they are. The Mayor is absolutely right that we will take every
available step to avoid and prevent a contingency being translated
into a cost.
Q172 Janet Anderson: You said in
answer to an oral question recently that you had established formal
systems in place to ensure sound budgetary control, and that expenditure
and income would be monitored monthly. I wonder if you could,
perhaps, tell us a bit more about those systems and whether you
are confident that they are in control of what is going on.
Tessa Jowell: Yes. Jeff Jacobs
is the Accounting Officer, and I will ask him to take you through
those.
Mr Jacobs: There is a range of
controls. Clearly, at the top of the process is the Olympic Board,
which the Secretary of State chairs with the Mayor, and the Board
is responsible for approving and analysing the overall budget
of both the ODA and LOCOG before it is set. The ODA itself is,
of course, a non-departmental public body accountable to the Secretary
of State through Parliament and, therefore, its budget is also
subject to direct approval by the Secretary of State. In support
of the Board itself, the stakeholders, the Olympic funding group
on the Board, have set up an Olympic Programme Support Unit which
is jointly funded by the stakeholders to provide across the piece
to stakeholders jointly an analysis month-by-month of progress—both
physical progress and financial progress—across expenditure
and delivery. At a more detailed level in relation to the ODA,
specific consent is required from both the Treasury and the Secretary
of State for projects above the £20 million mark, and therefore
projects like the power lines, which are already under way, have
gone through an in-depth process of analysis before they have
been given approval.
Q173 Janet Anderson: Are reports
produced monthly and, if so, to whom do they go?
Mr Jacobs: There are reports produced
monthly, both on an official basis where there is an Olympic Board
Steering Group, which I chair, which brings the chief executive
of LOCOG and the ODA, plus others, together and, more importantly,
that is a filtering system for the Olympic Board who receive monthly
reports both on programme and on funding.
Tessa Jowell: We do, in addition,
have continuing oversight by the Office of Government Commerce
which I have sought to involve in the Games from the earliest
stage, so they also on their analysis of risk provide continuing
oversight. I have referred also to the initiative that we have
taken in establishing a close working relationship with the NAO
to ensure continuing oversight in relation particularly to value
for money.
Q174 Janet Anderson: And the NAO
will be producing a report in the New Year, I understand?
Tessa Jowell: Yes.
Q175 Chairman: Can you tell us what
is the expected level of maximum spend on the project?
Tessa Jowell: I have given you
today the figure for the Olympic Park. The regeneration costs
have not been determined beyond the £1 billion that I referred
to that was identified at the time that we bid. That is cost which
is not Olympic but which is necessary in order to link the Olympic
Park to the rest of the Lower Lea Valley, and in fact some of
that money has already been drawn down to fund work which is of
longer term legacy and regeneration benefit.
Q176 Chairman: That is the £1.044
billion.
Tessa Jowell: Exactly.
Q177 Chairman: And who has control
over that?
Tessa Jowell: That sits within
the budget of the Department for Communities and Local Government,
routed through the Olympic Delivery Authority.
Q178 Chairman: And how do you respond
to David Higgins' suggestion to us that we should put these two
together and that there should be an overall budget to ensure
a longer-lasting legacy for that area of London?
Tessa Jowell: Well, I mean, you
can do that. You can add any figure you want to, depending on
the purpose, but I think that what we need to do in order to be
forensic in controlling these costs is to separate out the various
elements because, remember, this is a very important distinction.
We are obliged now by the host city contract to deliver the Olympic
Park within the terms of the Olympic bid. That is expenditure
which is an obligation on us, with all the provisos and caveats
about our continuing work to drive down costs and to secure value
for money. The amount that is spent on regeneration is a decision
that is taken electively in order to realise the full legacy benefit
and the regeneration prize of the Olympics. It is not an Olympic
cost as such, but it is an opportunity which arises because we
are hosting the Games. If you take the costs of Barcelona for
instance, I think from memory only 9% of their total expenditure
at around the time of the Games was directly attributable to the
Games. It is a little difficult to get precise details on the
Beijing budget but obviously we are very interested in that. For
those of you who have been to Beijing, you will see that they
are in effect rebuilding a third of the city and so the Olympics
again for Beijing is an opportunity, an opportunity linked to
an enormous and ambitious regeneration programme which, to go
back to Alan Keen's point, probably would not have been taken
at this time had it not been for the Olympics. Athens rebuilt
its tram system and built a new airport. You should not attribute
those as Olympic costs; they are costs that arise from the opportunities.
Q179 Chairman: So the £1.044
billion remains separate from the cost of building the facility
and at the moment that figure is unchanged?
Tessa Jowell: That figure is at
the moment unchanged.
Chairman: Thank you. Philip Davies?
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