The Treasury is coming under pressure to hand back £340 million of lottery VAT to the London Olympic bid.

Mayor Ken Livingstone backed Conservative calls on Tuesday for the chancellor to waive his take from Olympic lottery tickets.

It follows Gordon Brown's promise to return VAT from the new Live Aid DVD to the charity. 

Now the government is facing a cross-party campaign to do the same with the special Olympic lottery if London wins the 2012 games next July.

The move would take the strain off the Capital's council tax payers, who Livingstone has committed to meeting £625 million of costs and covering any overruns.

At present a typical London household will pay £20 extra per year for up to 12 years to pay for the bid's £4.875 billion budget.

There are also fears this sum could rise if, as happened with the Sydney and Athens games, costs exceed expectations.

By handing back the 12 per cent VAT take from the lottery tickets, the Treasury could release an extra £340 million to cover any cost overruns or reduce the council tax bill.

Livingstone gave his support to Tory sports spokesman Lord Moynihan who is lobbying culture secretary Tessa Jowell over the move.

Ministers' money

The peer claimed ministers have so far failed to put any government money towards the games.

"It can be sorted out immediately and it would have all-party support," he said.

"As a party we are completely supportive of the games and will do everything we can to support Lord Coe and the London 2012 committee.

"The major concern at the moment is the financing package. Londoners are being asked to pick up the lion's share of any overspend. That is a great concern.

"The prime minister of France has stated that its government will be injecting £1.7 billion into a Paris games. We have zero. Not only is nothing coming from the government but they trouser the 12p Olympic lottery tax."

However a Department for Culture spokeswoman said: "We don't expect any cost overrun. The stakeholders have worked together to produce very robust costings."

Livingstone and the 2012 bid team also gave a commitment on Tuesday that London would reap the benefits of holding the games in terms of jobs, housing and the new business generated.

"Everyone involved in the bid is very clear that the honour of hosting a 2012 Olympic and Paralympic Games will enable us to provide a lasting and sustainable legacy for London," he said.