Mayor will raid coffers to bail out Olympic village

The Mayor is set to divert public funds to the £800 million-plus venue, which has failed to attract sufficient private cash during the credit crunch.

Mr Johnson will make his first significant intervention on the 2012 project after being warned by his Games adviser, David Ross, of a "major risk" after developer LendLease failed to raise enough funding for the village.

Extra cash will come from government coffers available to the Mayor exclusively for affordable housing.

Under the plans, first-time buyers will be the main beneficiaries of the intervention as the village is converted from accommodation for 17,000 athletes and officials into 3,500 homes after 2012.

The bail-out will come from the Government's Homes and Communities Agency, which has an annual budget for London of £1billion - and will not cost London council taxpayers any extra.

City Hall officials stressed that the Olympic Delivery Authority also had a £1 billion contingency within the £9.3 billion Games budget.

Financing of the village was identified as one of three main concerns over the 2012 project in a report published today by Mr Ross. The deputy chairman of The Carphone Warehouse also criticised a lack of a legacy planning and long delays on agreeing security arrangements. His report revealed that the estimated cost of the main stadium was now £525million - a jump of £29million in 12 months .

Mr Johnson will tell the London Assembly: "There is a big message here on transparency and openness. It shouldn't take this kind of forensic review to identify the true cost of the stadium as it stands. I am determined to maintain pressure on the ODA and through them on their contractors to contain cost pressures and further calls on the contingency.

"The most immediate and serious impact of the change in the economic environment and the illiquidity in the banking market is on the plans for the Olympic village. It is now clear that the originally proposed deal under which the full costs of the construction were to have been privately financed will have to be restructured.

"I want to see the village after the Games as a model for new housing and new community developments. I want to see a place where people of all incomes will choose to live. I am committed to using the housing budgets for which I have responsibility to make this vision a reality."

Seizing on other concerns in the report, the Mayor said he would keep up pressure on the Home Office and Scotland Yard to ensure 2012 security arrangements got back on track. He will also propose a "special purpose vehicle" to take responsibility from the London Development Agency for signing commercial deals in the Olympic Park to deliver a local legacy for the Games.

THE HURDLES FACING THE 2012 GAMES

DAVID ROSS, 42, is the Mayor's new Olympics supremo on the board of 2012 organising body Locog, with special responsibility for overseeing finances. Here are the main findings of his report:

Olympic village

"Significant" additional public funding probably needed. The Olympic Delivery Authority plans to invest £550 million into the village but there is a "major risk" that its £250 million forecast share of profits through housing sales after 2012 will not be achieved.

Legacy

Mr Ross says he is "disappointed" at the lack of clear vision about the legacy of Olympic Park. He estimates there will be 70 hectares for development after 2012. London Development Agency's forecast of £672 million from land sales may be "more difficult" to achieve given current conditions, although the market will change before sales start in 2012. More houses may be built on site to balance the books. There is a "real danger" the £350 million budget for converting venues after 2012 will be cut as a "soft option".

Security

"Significantly behind the rest of the planning." Mr Ross, a former board member of Wembley, warns of extra costs if venues have to be "retro-fitted" with security measures, as happened at the stadium. He adds: "Failure to catch up and complete [a costed security plan] will have serious implications for Londoners as they will be the people most exposed to disruption and security risks."

Budget

The ODA has allocated but not spent £1 billion of contingency, bringing its current budget to £7.1 billion, out of the overall budget of £9.325 billion. Report says the extra £1 billion available to the ODA may not be adequate.

Venues

Cost pressures on venues have led to an overall rise of £106 million since late 2007. These have been offset by forecast savings, resulting in a net rise of £16 million. In the past year, the budget for the main stadium rose from £496 million to £525 million.