The National Lottery must benefit from unspent Olympic funds, according to the Culture, Media and Sport Committee.

In its latest report, London 2012 Games: the next lap, the committee said that while it finds “much to commend in what has been achieved so far by LOCOG, the ODA and the London Development Agency”, it believes that the increase in the Games budget – to £9.325bn – has been “damaging to confidence in the management of the overall programme”.

Committee chair, John Whittingdale, said: “We were pleased to find that, since we last reported, a more realistic approach has been adopted and we expect that the Games should be delivered comfortably within budget given that there is a 60 per cent contingency built in.

“We believe that the Lottery should have first call on any unspent contingency. We are disappointed that, so far, little progress has been made in setting out a clear strategy for delivering a permanent increase in sporting participation, despite this being a key feature of the bid.”

According to the committee, if the contingency elements of individual projects are take into account, the true total for contingency is £3.72bn, rather than the publicised figure of £2.747bn.

As a result, the committee recommends that “a substantial proportion of this should be deemed untouchable before 2011 and that any unspent contingency funds, whether they originate from the Lottery or from the Exchequer, should benefit non-Olympic Lottery distributors”.

The report also expressed the committee’s concern that each of the individual venues for which a revised budget has been published has shown a significant increase in cost over the original forecast.

It singles out the Zaha Hadid-designed Aquatics Centre, and said: “It appears to be over-designed and an expensive way of providing the facilities for water sports needing during and after the Games. It shows a risible approach to cost control and that the organisers seem to be willing to spend money like water.”