London 2012: How the Olympics' Costs Vaulted from Early Estimates to £11bn Tab

"The Montreal Olympics can no more have a deficit, than a man can have a baby," boasted Montreal mayor Jean Drapeau shortly after his city won the bid to host the 1976 Games.

Drapeau was certain that the Games would fund themselves, with the economic benefit from hosting the world's biggest festival of sporting competition offsetting any initial cost to the public purse.

The $1.5bn debt from building the Big Owe, Montreal's Olympic stadium, was finally paid off in 1999 having been a drain on public finances for thirty years. And a man has had a baby.

Britain's government would have done well to pay more attention to this expensive lesson, as it is left counting the final cost ahead of the London 2012 opening ceremony on 27 July.

On 14 January 2003, Tessa Jowell, Labour's secretary of state for culture, media and sport, opened a debate on whether or not Britain should bid to hold the 2012 Olympic Games.

"Can London and, indeed, the nation afford the investment needed?" Jowell asked the House of Commons, outlining one of the key tests to apply in deciding on whether a bid for the Games should be made.

When it came to the nitty gritty of numbers, Jowell issued a warning.

"To ensure the extent of any government liability, we have developed the work undertaken by Arup, which concluded that the total cost of hosting the 2012 Olympics would be £3.6bn, requiring a net public subsidy of £1.1bn," Jowell told MPs.

"In our view there is a significant risk of the total cost rising to £4.5bn, with a net public subsidy requirement of £2.5bn."

These estimates are despite a 2002 report from the culture, media and sport select committee that showed exactly how much other cities had paid or were paying to host the Olympics.

Beijing 2008 was forecast to be costing £9.775bn, while Barcelona 1992 cost £8.057bn.

Yet the government stood by its prediction of £2.5bn.

Almost a decade later and the real cost to the public - so far and from what we are told - stands at £9.3bn. It could rise further.

So why did it get so expensive to host a glorified sports day?

Cost of London 2012 rises

Just a year after the 2005 Olympics Bill had passed through the House of Commons following London's successful bid to be the host city for the 2012 Games, the government was forced to revise its budget estimates up by £900m.

In November 2006 Jowell, appearing before the select committee responsible for scrutinising her department, blamed steel prices doubling and a revision of transport costs to reflect rising inflation in the years up to the Games.

And so the total cost became £3.3bn, with London council tax payers set to foot the bill for the additional millions.

Fewer than six months later, the government was forced to admit it had seriously underestimated the costs of holding the Olympic Games and added a further £6bn to its budget.

Jowell was attacked for using more and more National Lottery funding for the Olympics, which amounted to one in every five pounds going towards London 2012.

Critics said this increasing reliance on Lottery cash was depriving the charities who would usually receive the money.

"London 2012 will bring huge financial gain to the whole country ... and it is only fair that the Lottery good causes should share in any such windfall," Jowell told parliament, defending the decision.

"I am determined to ensure that this temporary diversion from the existing good causes to the Olympic good cause is done with the least possible disruption."

The rise was caused by increasing costs involved in constructing Olympic venues, and the government footing the tax bill faced by builders the Olympics Delivery Authority (ODA), Jowell said.

Economic benefit of London 2012 challenged

Her assertion that there will be a big boost to the economy has been challenged.

Bank of England economists say there will be little or no impact to the economy during London 2012, while Moody's Investor Services said there will be no long-term benefit and will weaken future business results when compared year-on-year.

"Overall, we think the Olympics are unlikely to provide a substantial macroeconomic boost to the UK in 2012. The impact of infrastructure developments on UK GDP has probably already been felt," said Moody's.

"We expect the net impact of the Games on UK tourism will be positive overall, but less than gross visitor numbers would suggest."

Olympic Games 'on budget'

In May 2010 Labour was turfed out of government, replaced by the Conservative and Liberal Democrat coalition.

In came a new Olympics boss in the government, in the form of Jeremy Hunt, who took Jowell's departmental role. Underneath Hunt is Hugh Robertson, Olympics minister.

Both have boasted that they have kept a firm lid on the London 2012 budget, promising that it will come in on budget.

That is to say, it will come in on the revised £9.3bn budget, which is still well over the original £2.5bn allocated.

Since they took office, however, a number of projects within the London 2012 budget have become more expensive.

The cost of ceremonies, including the opening and closing spectacles, doubled to over £80m, as famed director Danny Boyle, in charge of the show kicking off London 2012, puts the final touches to his extravaganza.

A security fiasco saw private provider G4S leave Olympics organisers having to rely on the army to make up the numbers, at an extra cost to the taxpayer.

It emerged in July that G4S had failed to recruit and train as many security officers for London 2012 as was required, leaving the Home Office to pick up the pieces and the public to pick up the tab.

Games security costs had already doubled in December 2011 to £553m.

There is a contingency budget of £476m that may yet be gobbled up by other unexpected costs - such as any overrun in the Locog (London Organising Committee for the Olympic Games) budget.

Locog, a private company borne out of Olympics legislation with responsibility for the organising and running the Games, has raised £2.2bn to spend, from sponsorship deals to ticket sales, but its spending has almost hit this ceiling and the government is obliged to meet any additional costs.

It means there is still a threat that Locog will, for any number of reasons, have to invoice the government - or, more accurately, British taxpayers - for millions more.

MPs have already cast doubt on the final cost to the public purse being just £9.3bn.

Those sitting on the public accounts committee (PAC) predicted the total liability for taxpayers stretching to £11bn by the end of London 2012.

In a March 2012 report, the PAC noted "significant public sector costs" that appear to fall outside of the central £9.3bn budget, including £766m to purchase Olympic Park land, £826mn for so-called "legacy projects", and Games-related expenditure by government departments.

"The Department should produce a single auditable account covering Olympics and legacy-related public expenditure and income within six months of the Games ending," the PAC report said.

London 2012 legacy in doubt

Legacy has been a big feature of London 2012, with many eyes looking past the main event itself.

Plans are that Olympic venues will be "modified so that they can be used by both local people and high performance athletes long into the future", according to the London Legacy Development Corporation, the organisation responsible for what happens after the Games.

However there are big questions around the level of demand for these facilities post-Games.

The PAC noted that only 109,000 more people in the country were engaging in sporting activities since the Games were won, despite a priority of the government being to involve a million people and £450m being spent on meeting this goal.

This multi-million pound investment represents "poor value for money" said the PAC.

It also raises doubt over the level of demand there is for the sporting facilities left behind by London 2012 and the financial viability of their continued existence, threatening the potential return on investment from building these by using public funds.