Cost of Olympics rises by £900m as Jowell is forced to rework sums

The Government finally came clean on the cost of the London Olympics yesterday, admitting the bill had already risen by £900m.

A revised Games budget was made public by Tessa Jowell, Secretary for Culture, Media and Sport, for the first time following months of speculation about escalating costs. But it did almost nothing to assuage concerns that the final bill will rise above £5bn. The Tories said the budget had gone "disastrously wrong".

Under questioning from MPs, Ms Jowell said she could not rule out funding the shortfall with a further raid on the National Lottery or by increasing the contribution made by London's council-tax payers.

The budget of £2.375bn during the Olympic bid has increasingly been derided as a "fag packet" calculation and Ms Jowell was forced to concede that the current figure is more like £3.3bn.

It became clear that creative accounting by civil servants has resulted in a figure of £1bn-plus for regeneration of the Thames Gateway no longer being included in the overall Games figure - even though urban regeneration has hitherto been considered part and parcel of the Olympic project.

In front of the Select Committee of the Department of Culture, Media and Sport, Ms Jowell blamed rising costs on construction inflation, the doubling of steel prices and a revised figure for public transport links serving the Games site near Stratford, east London. Incredibly, the original bid figure did not include the £400m cost of hiring the international project management consortium CLM.

She admitted there were further "potential liabilities" in the cost of Olympic security, which some estimates put at £1bn; the extent of a contingency fund within the budget; and a VAT bill thought to be up to £250m not included in the original calculations.

The National Audit Office has been recruited to report on Olympics costs, she announced, adding to the myriad of scrutinisers which include at least four select committees and a further three from the London Assembly.

Ms Jowell's political opponents seized on the continued uncertainty which they claimed was a result of a struggle between her department and the Treasury.

The Conservative MP Hugh Robertson, shadow Olympics minister, said: "The hidden story of today is why the Chancellor seems to have reneged on commitments of VAT and contingency he should have signed up to at the time of the bid. He should stop posturing about [hosting] the 2018 World Cup and concentrate on setting a transparent and accountable budget for the Olympics."

The latest figures, which represent a 14 per cent increase on the original budget, were inevitably higher because sums had been frozen for nine months during the bidding stage, Ms Jowell said. She disagreed with the American Jack Lemley, the Olympics' recently departed engineer-in-chief, that the project was in trouble. "I don't agree with him and he never raised these matters with the board," she said. She also dismissed his concerns that "not a spoonful of earth" had been turned on the Games site as "cultural" difference with Americans on the compulsory clearance of land.

Should the organising committee (Locog) fail to cover the cost of staging the Games through sponsorship, broadcast revenues and ticket sales, the Government would not necessarily step in.

"Six years out, it would be foolish to rule anything in or anything out," Ms Jowell said. "I am telling the [select] committee that this project is under control. Just because the Government has underwritten the costs doesn't mean we are going to step up to the plate and write a cheque [to the organisers]."

Costs of the London Games will be raised as a matter of routine at the executive board meeting of the International Olympic Committee - in effect the franchiser of the 2012 Games - in Kuwait on 28 November.