Legacy’s big one

“Hello London, this is the mayor, and this is the big one.”

– Tannoy announcement replayed endlessly over the last month to London commuters waiting for the city’s creaking transport system to cough out their train

Last the UK government backed and boosted a major export industry, we got the banking and finance crisis. This time they got smart – and spent lots of taxpayer cash in advance.

Last time the UK government backed and boosted a major export industry, we got the banking and finance crisis. This time they got smart – and spent lots of taxpayer cash in advance.

More than 7.5 million foreign tourists came to London in 2011, very nearly matching the resident population. More than a third came during the peak summer months. And given that one in twelve UK jobs “is currently either directly or indirectly supported by tourism,” as the data would claim, it makes sense – if you’ve got none – to give it all the support you can. Using other people’s money, of course. And in return for Soviet-style ZIL lanes – cleared of plebian traffic – plus VIP seats from which to ogle the beach volleyball.

“Tourism is the UK’s third highest export earner behind chemicals and financial services,” gushes the London press, “with tourists spending more than £16 billion annually and contributing over £3 billion to the Exchequer.” The Olympic games will add another £2.3 billion to that, reckons prime minister David Cameron. Albeit over four years. Dave added the hilarious claim in June that a further £10 billion will also be generated over the next four years as a result of him schmoozing foreign dignitaries to “drum up business for Britain” as well.

Net cost to the Exchequer then? Zero on the government’s maths, if not better. Which is handy, what with austerity as doomed today as chancellor George Osborne’s leadership ambitions now that the UK is officially suffering its worst economic contraction ever. Yet already, the egg-and-spoon fillip is looking frail.

Foreign sports fans heading for London, for instance – variously forecast around 290,000 and so needing to attend nine events each to take up the 2.2 million tickets they’ve been allotted – have left their bookings terribly late. The European Tour Operators’ Association said last November that advance bookings for late-July to early-September were down 90% from the same period for 2011. Even now, central London hotels are reporting summer bookings down by one-third, with August “completely dead” according to a 3-star hotelier in Paddington – right next to the Heathrow-London VIP lane on the A40.

So room rates are being slashed, further denting the tourism bump. “The Olympics is still proving to be a challenge for most hotels,” according to one hotelier. Because the regular tourists who would have come to the world’s #2 most visited city anyway “are scared away” by the expectation of crowds and premium pricing, as a tour operators’ executive says. Even theatre bookings are apparently down by one fifth from 2011.

Outside London, the same story – just with less national coverage to date. Hoteliers in the north-west of England worry that Japanese visitors will all head for London instead. What little rush for beds there has been so far has failed to break even 3 miles beyond London’s M25 orbital motorway, according to Kent’s local papers.

Still, the opening and closing ceremonies for both the Summer and then Paralympics should look awful grand, thanks to the “austerity” Tory-led coalition government doubling the budget for fireworks and cheerleaders. Choosing from a menu of jamboree costs, “We decided to go in at the higher figure for the benefit of the country,” as sports minister Hugh Robertson put it in December. The same man who admitted six months later to under-estimating the cost of signage, stewarding and crowd control by one third. So at least he got his priorities right.

What about the immediate locale of the Games themselves? You might imagine that £9.3 billion – or £8.5 billion, if not £24 billion – spent clearing, rebuilding, preparing and staffing some of the UK’s most depressed and deprived boroughs for the Olympic Games would have already flooded, not trickled onto the local economy.

Yet five years after the spending began, 2010 data show that unemployment across the five boroughs hosting the Olympics had risen from 6.9% to 7.7%, peaking above 9% in Newham. Nearly 18% of those people in work were making less than £7 an hour, peaking at 28% in Newham. How’s that for Keynesian stimulus?

Sure, things may improve for the duration of the Games. Number-one security contract winner G4S claimed in May that 40% of the 10,500 temporary staff it would hire were to come from the local area. But that was before it admitted failing to meet its own quota – apparently thanks to using just 10 full-time managers to try and run the whole thing – forcing Whitehall to draft in and billet 4,700 army soldiers as it starts arguing the toss with G4S over the contractor’s £284 million invoice.

At that price, and paying that measly £7 per hour earned by nearly 1-in-5 local workers – scarcely half the national average – the State could have given 21,000 people a full-time job for a year. For the £9.3 billion estimate of all public costs, in fact, central government could have employed 98,000 people for each of the seven years since London won the Games with its 2012 Olympic bid.

But who’s counting? Think of the tourists! And then think of the PR for Britain. Starting with our glittering transport infrastructure…

“There is a big question mark over whether [the London Olympics organizers] secured a good deal for the taxpayer,” said  one MP from the Commons Public Accounts Committee back in March, guessing a total £11 billion drain on central government in total. The MPs’ report accused the Games’ organizers of making “a finger in the air estimate” for the number of security staff needed. Either way, they’ve certainly given a one-finger salute to everyone else.

Some 70,000 people get off the train at London Bridge station each day. Seventy per cent of them do it each and every weekday, getting back on in the evening to commute home again. It’s no fun. Trust me. But next Monday evening, we get a night off. Because half of the station will be closed to these poor drones, struggling to get home as usual. Because London Bridge is being cleared to give 69,000 horse-riding fans – apparently all piling through platforms 1-6 from Greenwich Park, despite no scheduled trains stopping there – the impression that London’s transport system runs to schedule free from over-crowding or angry, over-tired natives.

This Potemkin village-on-Thames has already spread out onto some of the UK’s busiest roads, closing one lane on each of the major arteries to ordinary serfs, going about their serfdom, so that athletes and panjandrums both native and foreign can glide past en route to the mayor’s big one. The ZIL lane on the A4 starts some 35 miles west of the Olympic Park. Stray in as an ordinary mortal, and you’ll be fined £135. Because if the roads aren’t cleared, how will the International Olympic Committee ever get to East London from their Park Lane hotel?

Still, let’s not be churlish just because getting to work will be even uglier for London commuters over the next seven weeks. On Goldman Sachs’ maths, London 2012 should be a net winner for the UK economy. Here’s the hard facts:

“A significant portion of the government’s bill will be recouped through the sale of land and other facilities. However, as yet there is no publicly available estimate of the likely proceeds from those sales…

“There are also likely to be indirect (or multiplier) effects from the additional expenditure related to the Olympics…[They] could be larger than in Beijing, Athens and Sydney, when the host economies were already operating close to full capacity…

“Hoteliers, restaurateurs  and retailers are also likely to witness…additional demand from overseas visitors. However, some tourists may avoid coming to the UK because of the Olympics, and the output of other businesses is likely to suffer as a result of transport disruption…”

Could, likely, maybe. All told – and “as a central estimate” – Goldmans reckon the net addition to UK output during the July-September period, if annualized, will be worth 1.2% to 1.6% of GDP. The timing couldn’t be better! But you might have expected some of the spend to have boosted GDP while it was happening, before the Games began. And anyway, “this short-term benefit will be largely reversed in Q4,” says Goldmans, leaving the UK firmly inside its depression.

Legacy is the key thing, however. So even though “London is already a high-profile city for tourism and investment,” as Goldman notes – and so “the incremental benefit from this promotion may be more limited” – there’s no end to the happy smiling faces turning towards our bright post-Olympic dawn. At the very least, as David Cameron said in his first speech as prime minister back in June 2010, he would “make sure the Olympics legacy lifts East London from being one of the poorest parts of the country to one that shares fully in the capital’s growth and prosperity.”

Never mind that Canary Wharf, annex to London’s financial district, sits in pretty much the same spot (public subsidy: £7 billion). As does the Millennium Dome, now the 02 Arena (public cost estimated at half-a-billion). Because this time, the legacy (not vanity) project will pay off for the residents of Tower Hamlets, Newham and the rest. Yes, really.

“[The] games allow people to dream of a better life,” says 10,000-metres Ethiopian legend – and now proud mentor for security provider G4S’s young athletes support program – Haile Gebrselassie. Funny thing is, with a quarter of the £9 billion public cost being paid for by UK Lottery players – whose £1 wagers would otherwise go to the Exchequer – it’s actually the other way round. People’s dreams are allowing the Games to happen. People’s dreams of winning big for a small price, fleeing deprived and depressed boroughs, and getting better than £7-per-hour wages.

“Wang would have to work for around 10 hours just to afford to buy 1 pin badge, which retails in the UK for around £6.50,” says PlayFair2012 of a 29 year-old Chinese factory worker making London 2012 badges for Honav, an Olympics brand licensee.

“Sometimes I buy a lottery ticket and hope I get some luck,” he says. Just like the Olympic dream says.

This article was previously published at BullionVault.com.