London has the potential to launch a world-beating bid for the 2012 Olympic Games says an independent report by Arup.

The report claims that for an initial expenditure of £1.8bn, bidding for and staging the Olympics in London could produce a profit of £79m.

London mayor, Ken Livingstone, has welcomed the report's conclusion that staging the Games in London, centred around the Lower Lee Valley and Thames Gateway, is technically viable, as has the British Olympic Association. Long term benefits including regeneration in the East of London; refurbished school gyms, leisure centres and community facilities and an 11 year, £167m elite sporting programme spanning the games designed to see the UK finishing in the top five nations in the Olympics and top nation in the Paralympics.

Once income from areas such as television rights and sponsorship are taken into account, the actual cost of the games to the government would be in the region of £494m, but Arup claims, looking at figures from the Sydney Olympics, that increased tourism would bring in a further £349m to £679m. Sydney also reportedly saw an increase in international business conferences.

'The Olympic Games would provide an opportunity for London to reinforce itself as a world city,' said the British Olympic Association, 'at the heart of a confident, competitive and prosperous nation.'

However, Arup says the support of the goverenment is vital: 'The most important ingredient of success will be the political priority to pursue both the nomination and, if successful, the staging of the games, wholeheartedly,' the report concludes.

The International Olympic Committee will announce the final host of the 2012 Olympics in 2005, with London's potential rivals for the title likely to include Rome, Toronto, Moscow, Paris, Budapest, Rio de Janeiro, Istanbul, Madrid and New York, which has recently been selected over San Francisco as the US city which will bid for the Games.