The 2012 Olympics budget is £500 million short of private sector money because of the credit crunch, the Government has admitted.

Tessa Jowell, the Olympics Minister, has publicly conceded the extent of the damage caused so far.

“We have lost half a billion pounds of private investment,” she told a private dinner in London attended by sports leaders and advisers. “But that does not mean it won’t come back. We have to be optimistic about the coming years and that there will be deals to be done. We will go back to the banks when borrowing terms are more favourable.”

The frank admission means that the Games organisers have already gone through half of the £1 billion contingency fund intended for emergencies, with four years still to go. The exact state of the Olympic finances will not be clear until the first set of quarterly accounts for the project is published in January.

Ms Jowell said: “The quarterly updates will present the full picture. Some risks materialise and some do not. Where they don’t, we make savings.”

This week the Government pushed back a Christmas deadline by which the Olympic Delivery Authority (ODA), the agency set up to build the Games venues, was to have agreed a deal to finance the £900 million athletes’ village.

The ODA will now continue negotiations well into next year with the Australian construction company Lend Lease, which had been due to invest £450 million but has struggled to raise the required loans from banks.

Work on the village, which has been scaled down to meet shrinking resources, has already started.

The Government released £95 million of contingency money to avoid disruption to the construction time-table during the commercial negotiations. Although ministers hope for an improvement in the economic picture, taxpayers might still have to cover the full cost of the venue, the most expensive on the Olympic Park and the most important to the International Olympic Committee.

Besides the £300 million hole in the village budget, a further £200 million of private sector money that was earmarked for the £400 million media centre has disappeared. The consortium involved is also struggling to raise its share of the money.

Ministers are investigating whether the centre, which would be sold off as office space after the Games, should be a temporary venue. This could cut its upfront cost by more than a third. However, it is thought that a flat-packed structure would not yield enough of a saving to forgo the opportunity to create an asset with a commercial value after the Games.

A similar conclusion was reached with regard to a proposal to scrap three temporary sports venues in the Olympic Park in East London. A report by KPMG, the accountants appointed by Ms Jowell to assess the impact of relocating basketball, shooting and equestrian events, found negligible cost savings.

The outcome of the review leaves little wriggle room for the Olympic board, consisting of Ms Jowell, Boris Johnson, the Mayor of London, Lord Moynihan, the chairman of the British Olympic Association, and Lord Coe, who chairs the London Organising Committee, in their quest to cut costs.

Numerical challenge

— 10,700 athletes are expected to compete at the 2012 Olympic Games, representing more than 200 countries

— An estimated 7.7 million tickets will be sold for the Games

— 1.5 million tickets will be sold for the Paralympics

— £5.9 billion has been added to the official estimated cost of £3.4 billion when London made its bid

— 1,200 of the intended 4,000 apartments in the Olympic Village have been cancelled because of the housing market downturn

— £90 million of savings have been made by scrapping the planned temporary fencing venue in the Olympic Park. The event will be held in the ExCel arena instead

— Shooting at Woolwich Barracks is also under threat

Source: London 2012; Times archive