Graphic: the Olympic site

Britain faces a £1 billion black hole after the 2012 Olympics because of “ludicrous” property price projections backed by ministers, it emerged last night.

Today the Conservatives and Liberal Democrats will, for the first time, vote against government plans to give the Olympics more money. Their move comes after a report for the London Development Agency (LDA) suggesting that the Government’s estimates for the amount it will recoup in land sales after the Games are unrealistic. The shortfall will hit heritage, sports and arts projects already suffering from tight squeezes on their budgets.

Ken Livingstone, the Mayor of London, and Tessa Jowell, the Olympics Minister, signed a memorandum of understanding last year stating that at least £1.8 billion would be raised in land sales after the Games. The LDA now fears that this figure, based on a 16 per cent per annum increase in land prices in Stratford, East London, over the next 15 to 20 years, is too optmistic. It told the London Assembly last week that it now plans to raise £800 million, leaving a £1 billion shortfall. About £675 million of this had been due to go to the National Lottery to repay money lent to the Games. This money could now be lost.

Land agents contacted by The Times said yesterday that even the LDA estimate, barely enough to cover the £650 million cost of the land and based on a 6 per cent rise per annum, could be too optimistic with the current flattening of the housing market. Savills, the estate agents, suggested that urban land values in East London, on and near the Olympics site, may rise by only 4 to 5 per cent per annum over the next 15 to 20 years.

Mark Dorman, the director of development consultancy for Savills, said that land sales had been rising by 16 to 20 per cent over the past ten years in East London, but they had now peaked. Any idea of raising 16 per cent per annum “is complete madness to me”, he said.

John Saville, from the estate agents Spicerhaart, calculated that prices in East London were unlikely to rise by more than 6 per cent: “Everything has changed in the last eight months. But we have got to top of the market — 16 per cent is ludicrous.”

This afternoon during a Commons debate on the budget, the Tories and the Liberal Democrats will demand a reassurance that no extra money will be used from the National Lottery to pay for the Games. They are concerned both by the latest estimates for land sales, which are now unlikely to be enough to pay back Lottery money, and by the lack of transparency in the figures released so far.

The memorandum last June spelt out that the LDA would get the first £625 million to refund the cost of buying the land for the Olympics and the Lottery would get its £675 million back in installments after that. In addition, £500 million for clearing and decontaminating the site would also be allocated to the LDA, totalling £1.8 billion. Anything after that would be shared between the Mayor and the LDA.

Ms Jowell said that land sales had risen by 19 to 20 per cent in the past 20 years. “[That] gives me confidence that enough will be raised from the land sales both to build the new houses and parts of the community in the Lower Lea Valley, but also to repay the National Lottery,” she told The Times.

Neale Coleman, finance adviser to Mr Livingstone, said that he still expected sales to reach between £800 million and £2 billion but “probably nearer the higher figure”. He pointed out that the more cautious figure adopted by the LDA was similar to its original estimates.

Andrew Travers, the chief finance officer of the London Development Agency, told the London Assembly last week, however, that after taking independent advice from land and property consultants it was planning for £800 million. The LDA told The Times that a new report from the estate agents Knight Frank had given three different figures for land sales, ranging from £836 million, based on a 6 per cent rise, through £2 billion, based on a 16 per cent rise up to £3 billion, if 19 per cent was achieved.

Jeremy Hunt, the Shadow Culture Secretary, said last night that his party would vote against an order allowing £675 million to be released from the Lottery to help to pay for the Games.

Arts organisations,which have already been squeezed acted angrily to the latest news. David Barrie, Director of The Art Fund, said: “It was bad enough when we heard the Lottery was taking a hit of more than £1 billion, but if it now turns out there is no chance of getting any of this money back that would be a disaster.”

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