The TaxPayers' Alliance - 2012 Watchdog

And the fraud Gold Medal goes to...

The 2012 Olympics have plenty of legitimate troubles (budget overruns, design problems, accountability vacuum etc) without criminal ones, too. However, today's press reports suggest that it may not just have been incompetence that has been costing the taxpayer so much money in the run up to 2012.

It seems that a "routine audit" ordered by Boris Johnson of the full Olympic operation has found that the Olympic Legacy Directorate, which is in charge of buying up the land for the Games, has got a £100 million black hole in its books.

As far as it is possible to tell from what has so far been released, the OLD should have money in the bank ready to pay the remaining companies who have not yet been compensated for their land. But a good chunk of the cash simply isn't there.

This is very worrying- as well as the potential loss itself, the need to compensate these companies remains and that could require money to be diverted from other budgets, many of which are already at breaking point or well over their limits.

As an aside, it is one of the oddities of quango nomenclature that the Legacy Directorate is actually a purely pre-2012 department and will be wound up in October of this year, rather than sticking around to oversee the post-2012 legacy after which it is named. Instead, it will hand over its budget to a separate legacy company which will be run at arms' length. This finding shows the importance of transparency, scrutiny and full, regular auditing. The Legacy company will be even less open to all those things than the OLD was - and look what's happened there.

Gold Medal Boonies

Our guys may be wearing the wrong kit

Let's be frank - our chances are not high. In Beijing, Team GB will comprise 313 athletes, and according to Sports Commissar Gerry Sutcliffe, it is "vital" they win their targeted 41 medals, including 10-12 golds. But outside the sports quangocracy few believe they'll succeed.

In Athens we won a mere 30 medals, including 9 golds. We were tenth in the official medals table. But adjusted for population, we were 28th in gold medals, and 31st for medals overall. We came in well behind such sporting giants as the Bahamas, Latvia, Estonia, and even Borat's Kazakhstan.

Of course, our failure wasn't for lack of money. One of BOM's very first posts noted that each medal cost British taxpayers £2.4m in terms of athlete funding. And since then, money has been shovelled in under the £0.8bn UKSport programme to breed a race of Olympic superathletes for 2012. But just as elsewhere, welfarism simply doesn't work - it mainly breeds dependency (see this blog for a real Olympic superathlete ripping into its debilitating effect among our gallant British losers, who notoriously lack "the hunger").

Still, at least the athletes are out there actually doing it. Much more teeth grinding is the vast number of bureaucrats, state broadcasters, politicos, and assorted hangers on we have to pay for, even though they will never break sweat and will spend their days dossing in luxury hotels and gorging themselves on free hospitality.

This morning we hear that:

"Whilst Team GB comprises 313 athletes, more than 600 publicly-funded workers will be attending the Games, including government ministers, press officers, local councillors and policemen...

Gordon Brown is expected to travel to Beijing with 20 staff, at a cost of £114,000, whilst the Department of Culture, Media and Sport will send 13 people and other government departments another 11..."

Tony Blair reportedly took just six to Athens.

"The taxpayer is also footing the £240,000 bill for 39 Metropolitan Police staff to go on a fact-finding tour in Beijing, while Dorset Police will send four people to find out how to police the 2012 sailing event and Greenwich council, which will help host the gymnastics in 2012 in the O2 Arena, is sending six officials at a cost of £14,000...

The London Development Agency, whose remit is to attract investment to the capital, has spent £3m to hire out a private members' club in Beijing for the duration of the Games. New London Mayor Boris Johnson considered axeing the venue altogether after being horrified at the original £4.6m budget..."

Er... so why didn't he?

And the biggest culprit?

Yup, our old friends round at the unaccountable state bradcaster:

"By far the biggest British contingent at the Games will be the BBC, which has sent 437 staff at a cost to the licence payer of £3 million. The record number is 33 more than the corporation sent to Athens."

And that's on top of who know how many tens of millions the BBC paid for the UK broadcasting rights (total IOC income from TV in 2008 is now put at $2.5bn).

It's the same old question: why should taxpayers be forced to stump up for a circus? Why should we pay for hundreds of state employees to boonie their way round the world?

Olympian Inferno

Gee-whizz stats from the Olympic Park

The National Audit Office has just published its latest update on the 2012 money inferno. They highlight three major concerns:

1. Security budget

Unbelievably, three years after winning the games, and three years after Sir Ian Blair bragged to Today listeners that we'd won in large part because his police force was recognised as a world leader in security (approx 20 mins before the 7/7 bombs went off), the Home Office still hasn't got a security plan capable of being costed. The NAO says:

"In the continuing absence of a fully costed plan, there is not a firm basis for taking forward the wider security arrangements for the Games, or for making sure that wider security requirements have been fully reflected in the planning and delivery of other activities within the London 2012 programme, including the construction of the venues, transport and staging."

In other words, while the security plan is still flapping around, there's no way we can know any of the other major costs are right. 

2. Olympic Village

As we blogged yesterday, the funding arrangements for the Olympic Village are in melt-down. This report tells us the total cost will be in excess of £1bn, which was originally to be funded largely by the private sector. But post-credit crunch that's a non-starter, and all work so far has been funded by taxpayers. The NAO says:

"Given the uncertainty over potential cost pressures on the Village project, and the ongoing consideration of alternative ways to finance the deal, it is not possible at this stage to determine the impact on the budget for the Games."

Clear enough.

3. Legacy planning

Extravagant claims about so-called legacy were a key element of London's original bid. Yet no serious planning has been done, and cost pressures point to downsizing. But as we've blogged before, the organisers have to satisfy the IOC that they are delivering on their bid commitments. Pulled two ways - a classic recipe for faffing around. Planning deadlines have fallen by the wayside, and the NAO says:

"The continuing legacy planning could affect the assumptions underpinning the Olympic Delivery Authority budget and the specifications it has agreed with contractors, with any late changes impacting on time and cost or on deals negotiated with developers."

Yes, it's those pricey "late changes" again- a chronic problem with all public sector projects.

The NAO is doing a good job with these 2012 reports. True, they make dismal reading, but they are building up into a systematic and invaluable record of just how incompetent and expensive our grandstanding rulers can be.

PS Those gee-whizz stats really are gee-whizz... eg the amount of contaminated soil to be washed would fill 10,000 Routemaster buses, and the cut soil would fill 20,000... although, couldn't we just have had the Routemasters left alone to ply London's streets?

2012 - Groping In The Dark

Does anyone actually know what's going on?

Following the publication of MayorJohnson's special report on the costs of the 2012 Olympics, he was interviewed this morning on BBC R4 Today.

He was asked about a "secret" Memorandum of Understanding signed last year between Mayor Livingstone and the government, spelling out who picks up the inevitable further cost over-runs of 2012. Would Johnson now publish it?

Boris responded by saying he doubted if it even existed.

Both question and answer were rather surprising, given that the Memorandum of Understanding in question is already published and freely available to all on the Department for Culture Media and Sport website. Which vividly underline how confused everyone now is, not only about total 2012 costs, but how those costs will be divvied up between London Council Tax payers and taxpayers generally.

As for the Mayor's special report itself, it's a good summary of many points already familiar to BOM readers (see previous blogs gathered here). But it does contain one or two further alarming details for taxpayers.

For one thing, it seems that the Olympic Delivery Authority has totally failed to deliver on its key pledge to employ only fixed-price construction contracts. It now turns out that for both the main stadium and the Aquatics Centre, it's accepted much riskier open-ended cost-plus arrangements, just like in the bad old days of wild over-runs:

"Both contracts are target cost rather than fixed price as it would not have been economically viable to seek to secure this. The ODA are realistic about the significant level of risk that remains within these contracts."

Which is no comfort.

When they got us into this mess, there was much macho talk from the "organisers" about how they would slam contractors up against the wall and make them accept keenly priced fixed price deals. On BOM we always said that was ludicrous pie in the sky (eg see this blog more than two years ago). So we were 100% right and they were 100% wrong. But somehow that doesn't that make us feel any better.

Then there's the Olympic Village, which was originally supposed to be largely funded by the private sector. We're now told that the private sector no longer wants to fund it - if it ever did. Instead, we taxpayers are having to step up, against a laughable promise that the flats and houses will be so valuable post-2012 we'll get our money back from sales.

TINA is back in town, as we always knew she would be. Time is running out and we have no choice. The "organisers" have now given the developer, Lend Lease, the go-ahead to start building "even though no Development Agreement has been agreed". Translation: a housing project costing many hundreds of millions is going ahead on a wing and prayer, with the taxpayer picking up whatever financial consequence may arise.

Current cost meter reading to date? According to the report, the main venues are currently running £106m over the supposed final FINAL costs agreed last November. Naturally, the DCMS disputes that, arguing the over-run is only £16m. But that's only because other bits of the project have been hastily canned to balance the numbers. Just one teensy problem with that - the canned bits include items that will almost certainly have cost knock-ons further down the line, eg:

"ODA value engineering exercises to contain costs and achieve savings have inevitably reduced planned spend in areas that are vital for legacy such as landscaping. Early business planning... has already identified the need for additional investment in the park to achieve the standard and quality of legacy park... The LDA is also concerned about potential shortfalls in the transformation budget for venues. It is not clear that the existing budgets will provide turnkey legacy facilities at either the Stadium or Aquatic Centre."

It's the same old same old. Grandiose projects, wishful thinking, wholesale salami slicing, short-term savings at the expense of long-term costs (now referred to as "value engineering")... anyone would think Big Government was a lumbering brainless over-priced dinosaur that can't even tie its own shoe laces.

PS After the Johnson interview this morning, Livingstone phoned in. And he was very explicit about a point about which he'd been quite circumspect while in office - the reason he backed the Olympics was so London could get its hands on at least a small part of the £20bn pa it has to hand over every year to fund the rest of the country. Put that way, many Londoners might see the point. But having to pay for a wasteful circus like the Olympics just to "get back" some of your own money, is a shocking testimony to just how badly Britain's huge fiscal centralisation serves London and the Greater South East (eg see this blog).

Still Soaking Up Cash

We order you to wiggle around a bit

This government has always believed that bossing us about can produce a better world. And it's always been happy to waste huge amounts of our money on any manner of hopeless programmes based on that belief.

So it's no surprise that this morning we're given a dopey plan to get us couch potatoes swimming and walking more. The government will spend £140m of taxpayers' cash on free access to local authority swimming pools for the over 60s and the under 16s. They will spend another £7m on programmes to get us walking more. And they will spend a whole £1m - yes, a whole £1m - on subsidised access to private gyms for 16-22 year olds. Total spend: £150m.

Except of course, that's just the headline. The reality is somewhat less clearcut.

To start with, our public swimming pools are operated by local authorities, and Whitehall can't actually make local authorities provide free pool access. Hence DCMS talks only of "encouraging" them to do so.

Second, what makes anyone think it's the cost of a pool visit that's the key factor stopping the potatoes taking the plunge into those often grotty pools? The key factor is almost certainly not cost, but simply that they don't want to. Sure, that £140m will get spent, but it will largely go on admin and to people who already swim - it's what's known as a deadweight cost.

Third, this isn't really about getting us to take up swimming at all, but box-ticking. It's about demonstrating to the International Olympic Committee that Britain is taking steps to deliver on that 2012 "legacy" promise. Because as you will recall, it was the grandiose promises about legacy that got us into this mess in the first place. This is really about saving face.

One final question - where's the cash actually coming from? We hope it's just a deckchair rearrangement within existing DCMS budgets. But given the record, you wouldn't want to bet on it. Another £150m into the 2012 sink.

PS As BOM readers will know, there's zero evidence that any of these expensive commissariat programmes for bossing us into getting fit have ever worked. The notoriously useless programme for tackling childhood obesity has cost us in excess of £1bn, but the number of obese children is higher than ever (eg see this blog).

Guzzling At The Olympic Trough

Click on image to enlarge

According to the Sunday Times, guzzling at the 2012 trough has plumbed new depths:

"Organisers of the 2012 London Olympics have block-booked 1,925 rooms in some of the capital’s most exclusive hotels for international delegates and their spouses at a cost of £10m. Top officials have been allocated 345 suites costing up to £3,000 a night at six Park Lane hotels including the Dorchester, the Hilton and Grosvenor House. Half the bill will come out of the coffers of London 2012, the Games organiser, in the most expensive block booking in Olympic history."

The rooms at the Dorchester include "the Harlequin suite, which has walls “upholstered in ivory silk” and is said to “glow with Hollywood glamour”. Elizabeth Taylor was staying in the suite when told of her multimillion-pound deal to star in the film Cleopatra".

The news should make taxpayers very angry, especially since the organisers reckon the money will not come from taxpayers. According to them, it will come out of the "private" revenue from staging the games. It's clearly escaped their notice that such revenues (if they materialise) are already spoken for to repay some of the monstrous taxpayer contibution elsewhere.

And there's more:

"The officials in London will be given the use of a fleet of 3,145 chauffeur-driven cars, despite the promise of a “green Games”. The route to the Olympic park will be cleared of traffic so they can glide to their destination in east London in about 20 minutes."

We've blogged this before but it remains an outrage. It literally is the way of Stalinist dictatorships.

Meanwhile, we've just had confirmation of something we've long feared: the £2bn Olympic Village, supposedly privately financed, is going to need a massive injection of taxpayers' money or it won't get built:

"Bovis Lend Lease, which was selected last year to construct the £2 billion Olympic Village in east London, is struggling to raise money to finance the project. A severe lack of credit in the banking system - and fears of a property price crash - have made it very difficult for any company to raise such a large sum.

Sources claimed that the problems were so severe that it was possible that taxpayers would have to provide more funding for the building plans."

Possible? We'll take that as a definite.

So is there any good news? At all?

Just this: nobody would start from here, but 2012 is at least putting up in lights just how deceitful, self-promoting, and incompetent our commissars can be. Taxpayers should take note, and remember.

The farcical Olympics budget

"Edward Leigh, the Conservative chairman of the committee, said the department "ignored foreseeable major factors" such as contingency planning, tax obligations, and policing and wider security requirements.

He added: "At the same time, the estimate of the extent to which the private sector would contribute funding towards the Games has proved little more than wishful thinking."

The Telegraph on a Public Accounts Committee reports that describes just how amateurish and unrealistic the original budget for the Olympics was.  There are too key reasons why this went so wrong, problems that exist throughout the public sector but have been particulary chronic in the running of the Olympics:

1.  The organisation is a mess

Take a look at this graph from the National Audit Office (PDF), who are trying to understand the structure that is supposed to deliver the Games:

You can click to expand it but I'm not sure it will make things any clearer.  The biggest problem is at the top.  As Edward Leigh said (PDF) when looking at this subject for an earlier report:

"There is no single person in overall control, is there?  For instance, this is a recipe for arguments and delay, particularly between whoever happens to be Secretary of State and the Mayor."

Sure enough we've seen nothing but delays and increases in costs.  The contingency established with the second, much larger, budget is already being used up in sizeable amounts.

2. Inexperienced leadership

That basics like programme contingency and security costs weren't included is an utterly amateurish mistake.  The thing is, the Olympics is being run by amateurs.  Look at this comparison between our Olympics Minister and Jack Lemley, the experienced project manager that the amateurs drove out, drawn by Wat Tyler:

"Jack Lemley:
1960-1967: Various Graduate Positions (Guy F. Atkinson Company)
1967-1969: Assistant Project Engineer — Shift Superintendent, Guy F. Atkinson Company Mica Dam Contractors
1969-1970: President, Healthcare, Inc.
1971-1972: Project Manager, Walsh-Canonie Joint Venture (Guy F. Atkinson Co.)
1972-1975: Contracts and Engineering Manager, Water Tunnel Contractors (Consortium led by Guy F. Atkinson Co.)
1975-1977: General Manager, Walsh Construction Company (Subsidiary of Guy F. Atkinson Co.) 1977-1979: Vice President, Special Assignments (Marketing), Guy F. Atkinson Co.
1979-1981, General Manager, King Khalid Military City Project, M-K Saudi Arabia Consortium
1981-1983, Vice President, Heavy and Marine Group, Morrison-Knudsen Company, Inc.
1983-1985, Group Vice President, Heavy and Marine Group, Morrison-Knudsen Company, Inc.
1985-1987: Senior Vice President, Construction Division, Morrison-Knudsen Company, Inc.
1987-1988: President and Chief Executive Officer, Blount Construction Group of Blount, Inc.
1989-1993: Chief Executive Officer, Transmanche-Link Joint Venture — TML, The Channel Tunnel Contractors
1995-2001: Chairman and Chief Executive Officer, American Ecology Corporation
1988 - present: Principal, Jack Lemley Associates

Tess:
Psychiatric social worker
Assistant director of the mental health charity MIND
MP"

The latter is in control of our £9.35 billion.

75% Say No To Olympics

"We're not idiots here. We have actually given more thought and careful planning than any other city has ever done before" (Tessa Jowell)

Today's 2012 opinion poll confirms what we always suspected: our arrogant spendthrift rulers have landed us with a huge bill for something 75% of us don't even want. The poll details are:

• 75% of us will definitely not attend
• 28% of us "have no interest in sport" at all
• 73% expect no benefit to their area
• 80% say it will not inspire them to participate in sport

Let's remind ourselves of the numbers. The official cost estimate is currently £9.3bn, or around £400 per household. But that excludes various "extras", and BOM's estimate of the all-in total is £20bn, or £800 per household.

To put it another way, if the 25% of adults who apparently want these games were billed for them directly, they would be paying about £1600 each.

The BBC are in denial, and their sports correspondents are busy explaining how it's "taking time to get the message across".

On the contrary, the message has come across loud and clear: our grandstanding politicians, cheered on by the BBC, have landed us with staging a hideously expensive event three-quarters of us simply don't want.

There could hardly be a clearer illustration of how our rulers ignore the wishes of ordinary taxpayers. Our only purpose is to pay the bills.

PS Amazingly, despite the overhwelming evidence of poor/non-existent planning pre-bid, that Tessa Jowell quote is what she actually says- see BBC vid.

2012 Aquatics Centre Costs Treble

An Olympian triumph of wishful thinking

The new Aquatics Centre for the 2012 Olympics was originally "budgeted" at £75m. A few months ago we learned it had escalated to £150m. We now find it's likely to be £214m. That's a literal trebling, which even by the dire standards of public sector procurement is a real humdinger.

The problem? Ludicrous, Olympian, wishful... er... "thinking". The Olympic Delivery Authority's own chief executive, David Higgins, now says:

"You couldn't pick a more difficult site. It's the main entry to the Olympic Park and the major roadway to the Stratford shopping centre, most of the major services to the site pass through it, it's the most contaminated part of the site. The power lines go underneath, the canal runs round it, we have found the most archaeological remains here and it's flood prone. In addition to all that you decide you want to build an iconic venue."

Now what pie-in-the-sky clowns would ever chose to do that?

Ah yes, we remember now. It was HM Government, ably assisted by Mayor Ken- the very same "winning team" who are still in charge.

We've blogged the Aquatics Centre before (see here), reporting how, contary to all best practice procurement guidelines, there is just one bidder for the contract, Balfour Beatty. They've been demanding £250m, and although the commissars have reportedly beaten them down to £214m, we're asking ourselves what quid pro quos have been offered? And will it be the fixed price contract always promised?

Commissariat spinners are now busy assuring us that this latest overrun will not blow the overall £9.3bn budget. But that's only because they've axed the planned fencing centre altogether.

And remember, we're still four years off: there's plenty of time to see costs escalate much further from here.

More On 2012 Land Values

Ken and his property market advisor

We've already blogged news of the latest "black hole" in the budget for the 2012 Olympics, but it's instructive to examine the background in a bit more detail.

The new problem arises because the land on which it's being held will not produce anything like the price envisaged when it's finally flogged off to private developers. Whereas land expert Ken Livingstone had asserted it would raise £2bn, the property industry view is that it will raise less than half that.

This should surprise nobody, in the sense that Livingstone's self-serving financial pronouncements are no longer taken seriously by anyone in the first place. But for what it's worth, last summer he claimed the sale would raise £2bn because London land values would go on rising at 20% pa for years to come.

Even at the time his own London Development Agency said the figure would be only £800m. But that wasn't what Livingstone wanted, so it seems he just came up with his own figures.

Who stands to lose? A big loser will be those lottery "good causes", which have been raided to make a massive "loan" to the Olympics. The loan will never be repaid. The other loser will be the London Development Agency, or in other words, the taxpayer.

It all goes back to the initial budget fiasco. As BOM readers will know, that saw public funding soar from the ludicrously low £2.275bn published pre-bid, to a figure four times that.

The revised £9.325bn was announced last March by Culture Secretary Tessa Jowell (see previous blogs, eg here). Announcing the figure was bad enough, but even worse for the DCMS culturati was the need to raid the lottery "good causes" fund for another £675m. That took the total Olympics raid on good causes to £1,085m. And it was on top of a further £1,010m always meant to be coming from special Sports and Olympics lotteries.

So the total planned take from lotteries was pushed up to £2.2bn, all of it effectively diverting funds from the culturati's cherished "good causes".

In an effort to hide their embarrassment, back in June, Livingstone and the DCMS cobbled together a revised Memorandum of Understanding. That set out the various budget contributions, as follows (PSFP refers to the original 2003 pre-bid Public Sector Funding Package):

• Olympic Lottery: £750 million as per the PSFP
• Sports Lottery: £340 million as per the PSFP
• National Lottery: £1,085 million ie an increased provision of £675 million
• Mayor: £925 million ie an increased provision of £300 million (not funded from increases in Council Tax or Fares)
• LDA: £250 million as per the PSFP
• Government: £5,975 million additional provision (including provision for wider security and Policing)
• Total funding provision £9,325 million

Of course, the big loser was the general taxpayer, now on the hook for £6bn. The original £2.375bn was all supposed to come from the Olympic Lottery (£750m), the Sports Lottery (£340m), the National Lottery (£410m), the Mayor (£625m), and the London Development Agency (£250m).

But the raid on the National Lottery also increased by a chunky 165%. And the Mayor was also committed to finding another £300m without increasing Council Tax or public transport Fares. Obviously some of that will have to come from much higher Congestion Charges, but how much easier to rely on soaring land values.

Which is precisely how the DCMS and Livingstone cooked up the idea of saying that the extra money being taken from good causes would get repaid post-Olympics from land sales. If land prices were assumed to rise enough, then circles could be squared, and castles of sand would become reboubts of fiscal probity.

So last June's Memorandum spelled out exactly how these assumed proceeds would be divied up between the parties. The first slice of £650m would all go to the LDA, to repay their costs in acquiring the land in the first place. The second- amazingly precise- slice of of £631m would be split £506m to partially repay the Good Causes fund, and £125m to the LDA. The third- equally precise- slice of £544m would be split £169m to Good Causes, and £375m to the LDA. Thereafter everything was to go to the LDA.

Let's just register those land acquistion costs. The LDA paid £650m for the site, and to our knowledge that has never been included in the declared 2012 budget. On closer inspection, the Memorandum also identifies £500m of LDA "costs associated with the remediation and disposal of land and buildings within the boundary of the Olympic Park, including fees and holding costs relating to those disposals". Which is another £500m not included in declared budget.

So on our reckoning, the official budget should now be increased by £1,150m for undeclared LDA land costs: the £9.325m official budget should read £10,475m.

Let's do the sums on the assumed land profits. Starting from the £650m purchase price paid out by the LDA, adding £631m for the second slice, plus £544m for the third, gives us a grand total of £1,825m. So to repay the Good Causes fund and the LDA in full, the land will have to appreciate by £1,175m, or an eye watering 80%. With the commercial property market already in trouble, that looks highly unlikely.Indeed, there's a fair chance the market will actually fall.

Bottom line?

First, we've discovered yet another £1,150m of costs, taking the official budget to £10.5bn. Second, the additional money grabbed from the Good Causes fund will never be returned in full. Third, even the LDA is most unlikely to get back more than a part of what it's stumping up. And with an estimated £500m needed to decommission the site, taxpayers should ask themselves who will then pay?