Shadow Sports Minister Hugh Robertson said he had received an assurance from Culture Media and Sport Secretary Tessa Jowell that the Treasury would waive the tax on construction costs. He said: “It would be catastrophic if Gordon Brown were to renege on that commitment now.”

The opposition party claimed the Treasury told Games organisers that they must pay VAT on building and staging the Games. They estimated this will be at more than £1 billion. The conservatives said this has not been included in the initial budget for the project.

Robertson said: “The issue of VAT on the Olympic sites was raised by the Conservative Party during the passage of the London Olympics and Para-Olympics Bill and we received specific undertakings from the Government that the Treasury would waive these costs. It would be catastrophic if Gordon Brown were to renege on that commitment now.”

He added: “Tessa Jowell gave me the assurance in the corridor of the House of Commons, when she said she would waive the VAT because it is inequitable. If you go through the £2.75bn Games budget and if you total up the VAT-able items, then it comes to £1.42billion.” Robertson said the Government would make up the deficit by taking money out of the Lottery and from London council tax payers, who are providing the money for the Olympics construction projects.

Robertson said: “The Government has to get a waiver, or admit that it owes money. This wasn't included in the budget.”