Officials admit the original budget could more than double, as London mayor plans to target developers to tackle cost overruns

The budget for 2012 Olympics could exceed £5bn – more than double the original budget – after Games officials admitted yesterday that the final budget would be significantly more than first expected.

The fears were highlighted yesterday after London mayor Ken Livingstone revealed he plans to use developers’ profits from developments at Stratford City to fund a potential Olympic cost overrun.

At the mayor’s question time at the London Assembly this week, Livingstone said land prices in the Olympics area had risen sharply and that extra profits made from this increase could be used to help tackle an Olympic overspend.

He said: “Land prices in the Olympics area have doubled. I will be looking at using the profits from developers on additional profits to service any cost overruns [on the Olympics]. In the event of a cost overrun it is a matter of discussion for the mayor and the government. That leaves the mayor in a very strong position.”

The news comes as acting chair of the ODA Roy McNulty admitted to the London Assembly that the budget for the Olympics would be significantly higher than the original budget of £2.38bn - possibly up to £5bn.

He told an emergency meeting of Assembly members that the budget hike was not related to venue costs. He said: “VAT was not recognised in the original bid and security and regeneration costs are going to be significantly higher than allowed for.”

Neale Coleman, policy director to the mayor and a member of the ODA board, confirmed that Livingstone was seriously considering using a planning gain supplement to fund an overspend.

He told Building: “If we had reliable receipts of what the land values would be after the Games, we could borrow against that now and the money could be used to fund extra Games costs. The two are connected because the LDA owns the land.”

Livingstone also shed light on wrangling over the Olympic budget. He revealed that the current deadlock was because the Treasury was demanding a 60% contingency budget, while the ODA was demanding 30%.

As a member of the Olympic board, Livingstone has the power to veto this, which he said he would implement. He claimed a contingency would send a message to developers that the ODA did not have confidence in the project.

He said: “The Treasury asking for 60% is breathtakingly ridiculous. I won’t agree to this and will use my veto against such a situation. Contingency is a green light to developers that something is going wrong.”

The mayor also confirmed rumours that Jack Lemley wanted more involvement than his position as chair of the ODA allowed and that he was suffering ill-health.

He said: “As a man of his experience he was itching to take over the project but I had to say to him he was chair of the board and not chief executive. [However], he was clearly not capable of the same level of workload after the operation [this summer] as he was before.”

Livingstone gave his personal endorsement to Sir Roy McNulty, currently acting chair of the ODA, to take the role on permanently.

Chief executive of the ODA David Higgins and Roy McNulty had been questioned earlier that morning by the London Assembly over fears that the Games would run over time and budget after Lemley left last month.

McNulty acknowledged that there were “serious differences between Jack and the ODA board and executive” but said that these differences were dealt with by Jowell. He also denied any knowledge of a payoff settlement for Lemley, which he said was matter to be settled between Jowell and the former chair.