Examination of Witnesses (Question Numbers
160-179)
RT HON
TESSA JOWELL
MP, MR DAVID
BROOKER, MR
SHAHID MALIK
MP AND MR
PHILIP COX
17 MARCH 2010
Q160 Mr Ainsworth: Yes, it is a much
better idea to write. Can we move on because you made a very important
announcement today about the land deal and debt. I have to say,
you have worked in regeneration and, I have to admit to my shame,
I used to be an investment banker in a former incarnation, I am
struggling to understand the press release that you have put out.
Can we just go through this. "Under the deal: the Government
will fund OPLC with £138m so they can purchase the LDA's
land holdings in the Olympic Park and at Three Mills. To reflect
the level of debt taken out by the LDA in acquiring the site,
the agency will be relieved of its commitment to pay £300m
to the ODA". Now, in that part of the deal it seems to me
that the LDA is £438 million up on the deal. You then have,
"The LDA will repay £369m of debt" and it does
not say to whom, "between 2011 and 2014" adding curiously,
"without the need to take out any further loans over the
same period". I am sorry, I find this very difficult to understand.
Can you elucidate?
Mr Malik: I will explain the first
bit and Philip will come in on the second bit, and I am hoping
that my bit is easier! You are right, that £438 million is
the correct figure by which the LDA will benefit. The idea, and
what we have agreed, the Government, the Mayor and the LDA, is
a financial package which will mean that, in return, the LDA will
transfer the Olympic Park and the Three Mills site to the OPLC
on a freehold basis and the Government will receive park development
proceeds instead of the LDA. I have to say on top of that that
there is some £675 million that has got to go back to
the Lottery and that is something that we are committed to doing
and the proceeds thereafter will come back to the Government.
So what we have done is effectively we have given the LDA the
£438 million and they, in return, will give the land to the
OPLC on a freehold basis. They will market and help develop that
land and when the proceeds stem from that development the Lottery
will get £675 million, which is our commitment to them, and
the other proceeds will go to the Government, so that is the first
bit.
Q161 Mr Ainsworth: The GLA gets a
cut of that as well though, does it not, 15%?
Mr Malik: They will, yes, but
what we have done is, with agreement, we have increased our take
of the final proceeds. On the £369 million, do you want to
say, Philip?
Mr Cox: The key feature of this
deal is that it is fiscally neutral, so it does not have an impact
on the overall public sector finances. In order to make it fiscally
neutral, the LDA needs to commit to repaying the £369 million
of loans. They took out a fair amount of debt in order to purchase
the Park. Obviously, it would not have been fiscally neutral if
we had given them £400 million and they had then been able
to spend it, so it is important that they have paid down their
debt. The reason why it is not £438 million is because the
LDA was assuming that it was going to have to borrow during this
period, so there is less borrowing assumed in the LDA's original
figures and that has been taken out and then they have repaid
£369 million of debt to make the overall deal fiscally neutral.
Mr Malik: Mr Ainsworth, just to
reinforce your point, you are right that the press release perhaps
could have been a bit clearer than it evidently is.
Q162 Mr Ainsworth: Well, I appreciate
it is a phenomenally complex deal, but goodness knows how anybody
is likely to understand what you have actually put out and I hope
that there will be more detailed information available to the
media and to everyone else in due course. I hope that this is
not just it, or is it?
Mr Malik: I am sure that the world
is watching this anyway, so they will all be aware of how it is
structured and how it works! I am very happy to put it in writing
point by point for your purposes—
Q163 Mr Ainsworth: I think it would
be helpful for the Committee actually.
Mr Malik: —and indeed, if
the media are so interested, I am sure that they will know how
to get in contact with either our Department or indeed Tessa's.
Q164 Mr Ainsworth: Apart from being
fiscally neutral, it seems to me that the key point to establish
here is what Baroness Ford was telling us on 3 March when she
came and gave evidence. She said then, "We and the board
have been guaranteed that we will not inherit that £600 million
of debt and we will have the land unencumbered". Has that
hope been fulfilled through this transaction?
Mr Cox: Yes, it has, the OPLC
will have no debt.
Q165 Mr Ainsworth: There is another
issue which again we discussed in the earlier session today as
it was raised by the host boroughs, which is the small matter
of the missing £450 million in terms of the finishing-off
infrastructure work and that kind of thing which simply does not
seem to have been budgeted for. What do you have to say about
that? Again, just so you know, they were concerned that if that
money is not spent then actually quite a lot of the good things
that everybody wants to achieve out of the legacy will not be
able to happen simply because there will be bits of wire hanging
out in the wrong place and the roads will not work.
Mr Malik: The £450 million
that Baroness Ford was speaking about was not `back of a fag packet'
stuff, but it was an initial estimate by the LDA of the funding
that would be required to ensure that the development could take
place. At this stage it is premature to speak about money because
what we actually need is the legacy master plan in place. Once
you have your plan in place, obviously then you can start to look
at what the funding requirements might be, but I am quite clear
because, to give credit to the ODA, they have done a great job.
They have cleared the land, they have put in services, they have
created 110 hectares of parkland from what was low-grade industrial
land, and have provided an excellent development platform for
the Olympic Park, so I am quite confident that, once the legacy
master plan is in place, then the funds that will be required
will actually be found for it. What proportion will come from
Government and what proportion will come from elsewhere, it is
premature to say at this stage, especially given the economic
cycle that we are currently in. I think most of us, even the pessimists,
accept that in the period we are speaking about, which is post-2012,
the economic situation will be much more vibrant and there will
be a greater possibility of funding coming in from various streams
because this is a real winner and I think people recognise that.
Q166 Mr Ainsworth: It is very important,
is it not, Tessa, and this needs to be sorted out?
Tessa Jowell: I think that Shahid
has dealt with this very clearly. First of all, obviously as Shahid
has, I have talked to Margaret Ford about this. This is a figure
that nobody recognises and nobody believes that this was a figure
that was—
Q167 Mr Ainsworth: It is recognised
by the LDA.
Tessa Jowell: It is a highly provisional,
approximate figure. Are there costs? Yes, almost certainly. Have
we made provision for legacy transformation? Yes, we have. There
is £350 million in the baseline budget of the ODA for legacy
transformation which will be used in the first instance and some
has already been committed, but the remainder, which, from memory,
is about £234 million, will be spent on dismantling the wings
of the Aquatics Centre, the Aquatics Centre which we have been
talking about which will be used by an estimated 600,000 people
a year and developed in co-operation with British Swimming, some
adaptation to the handball centre so that it becomes the hockey
centre, taking down the stadium, which I am sure you will want
to talk about further, and other realignment of bridges and the
roads which have been dedicated for Olympic use, so £350
million is in the baseline.
Q168 Mr Ainsworth: The problem is
that the £450 million is theoretically additional to
that £350 million.
Tessa Jowell: Well, it is, but
one of the calls on this £450 million could be for some land
remediation. There has been land remediation as part of the regeneration
of the Park to 600cm rather than the level that might be required
were the whole park to be taken up and used, for instance, for
family housing with gardens, so until the master plan is confirmed
and the phasing of the development confirmed it is difficult to
be precise about this. The other point that I would just make
is we have established the Legacy Board because the park is going
to be run by a commercial company. The membership of the Board
reflects its commercial thrust and this is not expected to be,
if you like, a public sector asset in perpetuity, but wiping its
own nose because of the commercial attractiveness on the back
of the public investment that is being made for the Games, added
to in order to augment the legacy value.
Mr Malik: Mr Ainsworth, the only
slight point I would just add to put it in its full context is
this is not an upfront sum potentially. We have accepted that
it is an approximate, initial, indicative kind of loose figure,
but this is not an upfront cost; this is the potential cost over
a number of years over the long-term, and that is significant.
When Tessa talks about phasing, that is exactly what she is alluding
to. This is not £450 million upfront, but this is over approximately
15 to 20 years.
Q169 Mr Ainsworth: Well, you will
be interested to read what the host boroughs had to say about
this issue earlier today and no doubt there will be further robust
discussions.
Tessa Jowell: Well, I am sure
that if I were the leader of one of the host boroughs I would
want to make absolutely sure that I was not going to become liable
for this, so of course they are right to take that stance. One
of the facts about this, which I am absolutely sure you know better
than I do, is that when you are planning a project over 10 to
15 years, and in the case of the legacy master plan up until 2035,
you cannot on day one answer all the questions, but what we are
doing faster than anybody else is putting in place the structures
that mean that over time all those questions will be answered
and with greater ease as revenue begins to be generated. Both
Shahid and I are perfectly happy to be on the record being clear
that it will be the commercial success of the Park that will pay
for this.
Q170 Alan Keen: Before I start asking
my questions, you know I am an enthusiast for the Olympics.
Tessa Jowell: I know you are,
yes, a fantastic advocate for them.
Q171 Alan Keen: I was an excited
10-year-old at the 1948 Olympics, so I am not an antagonist and
you will also be surprised if I did not come on to the same subject
that I always come on to, but I am going to come on to it again
now. In billions, and only in billions, what is the total cost
of the Olympics, including the infrastructure and everything else?
Tessa Jowell: The budget for the
Olympics is £9.325 billion which will pay for the construction
of the park, including the Olympic Village, it will pay the VAT
cost, it will meet the cost of security and it provides for a
£2 billion contingency above the ODA baseline of £6.1
billion.
Q172 Alan Keen: So, on a sort of
profit-and-loss basis, after we have evaluated the infrastructure,
including the station and everything else, the Park and the Stadium,
what is the net cost of the Games, and just roughly again in billions?
Tessa Jowell: It is an important
question and it is one which gives rise often to confusion because
there are, if you like, three accounts. There is the Olympic budget,
which is the cost of constructing the Park, there is then the
cost of staging, an estimated £2 billion, and then there
is, if you like, the opportunity investment that will be made
by businesses around the country, by local authorities and by
other public sector bodies around the country because they think
they are going to get better value from their revenue or capital
investment because of the Olympics. Now, what I can focus on are
two elements of that. One is the Olympic budget, the cost of building
the park and making sure that the Games are safe and secure, and
the second part is staging. I am not sure if you have taken evidence
from LOCOG, but obviously, as a private sector company operating
in the public sector, they are responsible for their budget, but,
just to remind you, the Government is the guarantor of both the
LOCOG staging budget and it underwrites the cost of constructing
the park. When people talk about an Olympics making a profit,
what they refer to is the profit from staging and, as of now,
we do not know, and we cannot know, what any element of profit
will be, we do not know, as of now, how many tickets will be sold
for the Olympics and the Paralympics, we do not know what the
final sponsorship tally will be and there are a number of costs
which we are in the process of interrogating with LOCOG. What
we hope will be the final lifetime budget for LOCOG will be complete
towards the end of September.
Q173 Alan Keen: The point I am after
really is what is the net cost of getting it? We know that, whatever
investment there is in whatever enterprise, there are spin-offs
and a business mix and a profit out of it by increasing the turnover
and everything else, but what I am after is what is the cost of
the Games? When the Games are finished, if you deduct the value
of what is left, and I am talking about the infrastructure, forgetting
about the intangible benefits of people having enjoyed themselves,
if I were an entrepreneur investing my money, investing £9.25
billion in it, what would the Games have actually cost me and
how much would I have actually got? I would have a value left,
the infrastructure, and you cannot take account of the intangibles,
but what would it have cost to stage the Olympic Games in 2012—£2
billion or £1 billion?
Tessa Jowell: Well, it will have
cost, we expect, a bit less than £8.1 billion, and the anticipated
final cost was published in our Annual Report, I think, of £9.264
billion,[1]
from memory. That is, as of now, the anticipated final cost, but
the park is 50% complete. We have to complete the park before
we can give you a final figure for that. We then have to sell
the Village in phased sales in order to give you a figure for
receipts. The OPLC, on a phased basis but within the structure
of the deal that Shahid set out for you, have to sell the land,
and the phasing of these sales, which will generate part of the
answer to your question, will take account of market conditions.
Q174 Alan Keen: I understand all
that, but there must be a net cost of the Games. If you did not
have to build any infrastructure and you did not have to build
any new stadiums at all, but you were just going to stage the
Games, what would it cost the taxpayer?
Tessa Jowell: Well, if you were
simply staging the Games, it would be £2 billion. If you
did not have to build anything or make any adaptation, no Olympic
route network, if everything were in place, if we had an Olympic
Games in 2012 and then we had another Olympic Games in 2013, then
the cost of staging the 2013 Games would probably be, and of course
there are policing costs which would attach to any Olympics, about
£2 billion plus or minus the cost of policing city operations
and so forth.
Q175 Alan Keen: Well, policing is
a real cost, is it not?
Tessa Jowell: Yes, and is included
in the security budget.
Q176 Alan Keen: So it is about £2
billion?
Tessa Jowell: I want to be absolutely
sure that I am giving you the right figure in response to your
question. £2 billion is what we expect will be the budget
of LOCOG and they expect the budget to balance and that is what
we expect will be the cost of staging the Games.
Q177 Alan Keen: So it is pretty expensive,
is it not?
Mr Malik: Mr Keen, can I just
add for a second on that point that we are not a business, this
is not a business that has bid for the Olympics, but this is a
nation which has bid for the Olympics and we are thrilled and
privileged that we have won it. What I would say to you is I do
not see this in terms of cost, I see this in terms of investment
and I do not think you can actually work out, using the linear
equation that you are looking at, what the value of these Games
will be. I am not talking about the intangibles, does it make
people feel good, because actually if it were just for the Games
itself I do not think we would have done it and I do not think
it would have represented value for money. We bid for it and part
of our bid was about the legacy and that is 20 years hence, and
that will be in East London, this ambition of convergence on education,
worklessness, housing, health, crime, sport and culture. The impact
of those over 20 years on the economy, if you start to build that
in, that is when you get, I think, a better kind of economic model
of what these Games' value is, whether it is investment or it
is a cost. I know what you are trying to get at and Tessa, I think,
has given you a very straightforward response to that linear question,
but I actually think it is much broader than that. I understand
why you are trying to ask it and I do think that over the next
two decades it will have been a superb investment in East London
and in this country.
Q178 Alan Keen: I do not disagree
with that. Tessa probably knows what I am getting at and I am
getting at this really—
Mr Malik: I was waiting for your
football question!
Q179 Alan Keen: We could stage the
Games much cheaper if it were on a national basis and we did not
have to take note of the IOC and have it staged in London. This
Committee did a mass of work on Wembley Stadium and £20 million
was given to the FA, I think, to ensure that Wembley could be
used for athletics by building a platform to extend the flat area
to get a track on it, but we have been dictated to by the IOC
in having to have it in a city, a city Olympics, where the village
has to be within a half-mile travelling time from the main stadium.
I have asked this question of Steve Redgrave and Steve said that
the village atmosphere is an essential part of the Olympics, but
it is a very expensive luxury to have. We could have used stadia
around the country for staging the Olympics on a national basis.
I am not worried about our Olympics when I ask the question about
how much is it going to cost, but I am more worried about the
future and other nations in the future having to compete for this,
and I am trying to make the point that it is at a tremendous cost.
What representations have you made to the IOC about changing their
principle from a city Olympics to a national Olympics? No developing
country could ever stage the Olympics at this cost that we are
having to incur, but they could probably do it if it were done
on a national basis, and we could spread our investment, the investment
that Shahid is talking about, around the whole of the country
and satisfy the whole of the country without trying to come up
with ideas of how to convince the people in Newcastle and Bristol
that they are really part of it. The IOC, I think, has to change.
It is an unelected, small body of people and they dictate to the
world and it is politicians they catch because we went into this
with great enthusiasm. This Committee did not actually recommend
that we bid, we just said that this is the long-term goal and
we set out what the advantages and disadvantages were and what
the Government had to look at before it decided whether to bid
or not. We did not actually say that we should bid, though some
of us thought we should and some of us thought that we should
not and I was one of those that thought that we should. The question
is what representations have you made to the IOC to make them
realise that their principle actually costs an awful lot of money,
which I think is unnecessary?
Tessa Jowell: Well, I think it
is an important question and I have often said, and to this Committee,
one of the reasons I am so determined that our Games are going
to come in within the budget allocated for construction is because
if the expectation is that you spend at the unspecified levels
of other cities then you are absolutely right, the global nature
of the Olympics is under threat because cities in developing countries
will not be able to afford it. That is point one. Point two is,
obviously, the benefits of using a proportion of temporary venues.
I believe, and we will check this fact for you because I have
not looked at this figure for two or three years, that 70% of
our venues are existing venues because the football venues are
all around the country. Weymouth is now complete, but it was a
pre-existing sailing centre, and Eton Dorney, which is where the
rowing will be, has been upgraded, but it is a pre-existing rowing
facility, so, wherever possible, we have used existing facilities.
The central point is what representations have I made, and I will
answer the question very briefly in two parts. First of all, whether
we like it or not, the decision about who hosts the Olympic Games
is a decision for nobody except the IOC, so we have to persuade,
as a bidding host city, the IOC that we have got the best offer
for them. Why did we win? We won because the Games are in London
and it was made perfectly clear that there was no point in bidding
for another UK city to act as the host city, so the Games are
in London and we focus so heavily on legacy. My representations
to the IOC have been in three respects. One is in relation to
International Inspiration which will become, I believe, a global
movement which I secured agreement with Rio 2016 that they will
take over. I believe that that should become a programme, a development
and sport programme, run on a long-term basis under the aegis
of the IOC, managed by successive host cities, so that is point
one. Point two, the second representation that I have made to
the IOC is that unless you have organising committees and the
IOC working closely with Government in absolutely equal partnership
you cannot achieve scale and you cannot achieve proper legacy.
The third representation I have made to the IOC is that there
is no question of activating either the construction or the staging
guarantees, except for force majeure, in other words to
fund only risks that could not, by any reasonable person's judgment,
have been foreseen given the changed financial climate, the pressure
on public finances and, I think, also the importance of public
opinion.
1 Witness correction: The anticipated final
cost quoted in the Annual Report was £7.262 billion, not
£9.264 billion. Back
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