Olympic euphoria will make the 2012 bill worth it

Now the UK is winning so many medals, we’ve forgotten a lot of pre-Games scepticism — even over the cost. This is up from an estimated £3 billion at the time of the bid to nearer £9 billion now, covering venue construction, infrastructure, security, publicity and running the Games.

That may sound like a lot but it has been spent over several years — and represents less than one per cent of the UK’s GDP. Some may be recouped through sales of land and structures and exploitation of venues. And the Games may make an operating profit from ticket sales.

Things have turned around since Montreal’s $1 billion Olympic overspend: its citizens paid back over a decade what in 1976 was a huge sum. As a result there was a reluctance from Western cities to host the Games. Los Angeles in 1984 came up with a formula where the Games were organised by a consortium of private enterprises and ended up making a $230 million profit, though it is still not clear how infrastructure costs were accounted for there or in Atlanta. So from 1996 onwards, the International Olympic Committee has required that the host nation offers an unlimited warranty for the Games’ solvency.

In London, sponsors have contributed bits of infrastructure for free and purchased expensive seats. But non-sponsors have complained that they are not able to take advantage of the Games. And there has been displacement: Londoners have left their city amid security and congestion concerns. West End theatres, hotels and restaurants are complaining; business visitors have been replaced by tourists, who spend less per head. There have been extra costs to businesses, such as the interruptions to working practices like staff working from home.

A lot of that may be unquantifiable, though the third quarter GDP figures, when they are published in the autumn, will give us a reasonable indication. Will the impact be enough to reverse the declines in the first half of 2012? The benefits of earlier extra house-building around the Olympic Village and infrastructure spending were real. However, they have now pretty much evaporated, as the appalling construction figures in the last two quarters indicate.

Economic consultancy SQW (working for Visa, an official sponsor) had estimated net short-term benefits from extra visitor spending to be £1.2 billion, and extra additional spending from higher tourist numbers in 2013-2015 £2.7 billion over and above what there would have been without the Games. But there is evidence that, if anything, visitor numbers may turn out to be lower than without the Games. And even if they do materialise, they don’t cover the direct — let alone the indirect — costs.

Yet the longer-term benefits are incalculable: the much-needed regeneration of the Lower Lea Valley; the boost to the UK’s image from an Olympics that connoisseurs rate as the most efficient they have ever seen; and the sporting legacy.

And then there are those medals. Goldman Sachs calculates that over the past 10 Olympics, the host nation has won 54 per cent more medals than in Games it did not host. And depending on what value we put on our position in the medals table, the expenditure may be worth it for that alone.

Vicky Pryce is a City economist and former joint head of the Government Economic Service.