Treasury asks Whitehall to fund 1bn Olympic shortfall

The Treasury has demanded that government departments search their budgets for a contribution to the 2012 Olympic Games, which are rumoured to be facing a £1bn shortfall.

A senior Treasury source said: “We are scrabbling around at the moment trying to find money for the Olympics. The Treasury is looking for all departments to come up with suggestions for how much they can find to put towards this.”

It is unclear how much the Treasury hopes to collect, but there is speculation that the £3.7bn in public funds earmarked for the construction of the Olympic park in north-east London is at least £1bn short.

Some of the departments have large annual budgets; the ODPM, for instance, has £50bn. Building understands that a number of departments have already responded to the Treasury’s call.

The £3.7bn total is made up of £2.4bn to build the Olympic park, £800m for infrastructure and £478m for site acquisition costs. The source said: “The only thing the Treasury is confident of is that it will cost much more than it thinks.”

A Treasury spokesperson said:

“It has always been accepted that there are costs associated with the Olympics that would have to be funded outside the lottery and London council tax public sector funding envelope.

“The government has ensured that there is no shortfall in the current spending period and the issue will be revisited in the 2007 Comprehensive Spending Review."

The only thing the Treasury is confident of is that it will cost much more than it thinks

Treasury source

The news comes as the Treasury reviews the way financial management is carried out in Whitehall, after concerns that government spending lacks transparency.

The review into Whitehall’s financial management is being led by Mary Keegan, head of the government accounting service, and the Treasury’s private finance unit. The aim is to replace arcane budgeting methods with the stricter standards of the private sector.

One potential change is to implement a “zero-based approach” to budgeting each year. This would mean that a department applying for funds from the Treasury, for a hospital would have to justify every penny during each year of the contract. This means starting annual budgets from scratch.

Under the current “incremental” approach the previous year’s budget is adjusted for inflation and expected market changes. Departments have to maintain their budgets every year in order to retain funding.

The accounting change under consideration could be particularly useful in assessing the cost of design-and-build projects when capital spending is high.

A source close to the Treasury said: “Under the current system, it’s difficult to do analysis of projects. It might be that they find schemes cost a lot more than they thought.”